Article by Robert F. Salvin
Most debts are dischargeable in bankruptcy without any inquiry into the debtor's ability to effect repayment. Student loans, however, are subject to unique treatment. During the first seven years in which a student loan is in repayment, it is nondischargeable, except in cases where continued liability will cause the debtor to experience undue hardship. The undue hardship standard was not defined by Congress, and the courts have wrestled with its meaning. Courts differ on the degree of the proof necessary to establish undue hardship and on the appropriate test for determining its existence. The prevailing view is that undue hardship should be interpreted strictly. Because most debtors face financial difficulty, and the repayment of a loan will necessarily involve a degree of hardship, many courts state that undue hardship is present only for debtors able to demonstrate “unique and extraordinary circumstances” or a “certainty of hopelessness.” Consequently, debtors often face bankruptcy courts indifferent to their circumstances and are commonly denied discharge of student loan indebtedness they will have trouble repaying. This Article argues that the strict interpretation of the undue hardship standard is at odds with the fresh start policy underlying the discharge of debt in bankruptcy. Conditions of unmanageable indebtedness create a disincentive to productive participation in the economy as a result of a debtor's inability to realize the benefits of his labor in the face of creditor collection efforts. The fresh start policy seeks to restore debtors to productivity by relieving them of debt they cannot otherwise pay. In the context of student loans, the fresh start policy mandates that the undue hardship standard be interpreted in a manner that assures a debtor's productive reintegration into the economy. Undue hardship should not be interpreted so harshly as to leave debtors liable for student loans they will have to struggle to repay. To the contrary, to provide debtors a stake in society and assure their reintegration in the economy, undue hardship should be found to exist for any debtor who will not be able to maintain a middle-class lifestyle and at the same time repay student-loan debt.
About the Author
Robert F. Salvin. Judicial Clerk, United States Bankruptcy Court for the Eastern District of Pennsylvania, Philadelphia, Pennsylvania. B.A., 1984, West Chester University; J.D., 1987, University of Dayton. From 1991 to 1995, the author was a clinical instructor at Temple University School of Law where he supervised a bankruptcy clinical program at the Temple Legal Aid Office.
Citation
71 Tul. L. Rev. 139 (1996)