Earlier this week I discussed the minimal standard of living prong of the student loan discharge test. Remember, to discharge student loan debt you must prove an undue hardship. To prove an undue hardship exists you have the burden of showing:
1) That you cannot maintain, based on current income and expenses, a minimal standard of living for yourself and your dependents if forced to repay your loans;
2) That additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of your student loans; and
3) That you have made good faith efforts to repay your student loan debt to date.
Now I will discuss the second prong, often refereed to as the exceptional circumstances prong. This factor is often cited as the core of the undue hardship analysis. It is interested in what factors currently exist that make it a hardship to repay student loan debt and whether those factors will remain for a substantial part of the repayment period. This factor looks to the future and attempts to determine if your hardship is a short term hardship or will last for the foreseeable future. There is no exhaustive list but some factors have included:
1) Long term illness;
3) Lack of usable job skills;
5) Inability or lack of retraining; or
6) A large number of dependents
Again, this is not an exhaustive list but does give you an idea of the type of long term circumstances that may make it impossible to repay your student loan debt. As you can see, the hardship has to go beyond the debt itself and must be a circumstance that is long term. If you are a person who is working at a low paying job by choice, this will not establish an exceptional circumstance, especially if you have a history of higher paying jobs. As the Fourth Circuit has said,” nothing in the Bankruptcy Code suggests that a person may choose to work only in the field in which he was trained, obtain a low-paying job, and then claim that it would be an undue hardship to repay his student loans.” As you can see, the goal is to force repayment of student loan debt.
In addition, current costs or the extra costs of higher paying employment will not necessarily satisfy the exceptional circumstances prong. The most cited example is increased child care costs. Courts however have not been convinced. This is especially the case because child care expenses decrease over time as your child goes to school and grows older. Again, it is a circumstance that will last for the foreseeable future and you must present evidence to support whatever the factor may be.
Next week I will complete this series with a discussion of the final and most difficult prong, good faith efforts to repay your loans.