In our last post, we looked briefly at the undue hardship test used in bankruptcy courts to determine whether debtor is able to have his or her student loans discharged. As we pointed out, a debtor must be able to show three things: (1) inability to maintain a minimal standard of living (2) for a substantial portion of the loan repayment period, (3) despite good faith efforts to repay the loan.

When courts undertake an undue hardship analysis, they consider a number of factors to determine whether the three-part test is satisfied. These factors include: mental or physical impairments; whether there are factors beyond the control of the debtor which affect repayment; whether a debtor pursued alternative repayment plans; whether payments were made on loan debt when resources were available to do so; what other debts the debtor is carrying and the length of time the student loan debt has been owed; the proximity of the debtor’s retirement; material changes in the debtor’s health; and the debtor’s spending habits.

Another factor that is taken into consideration is whether a Chapter 7 debtor has reaffirmed other debts that would otherwise have been dischargeable in bankruptcy. To reaffirm a debt in bankruptcy is to waive discharge of a debt that could have been discharged. Doing so might be desirable in order to keep an asset that would otherwise have to be liquidated in order to pay the creditor back, but it will also be considered by the court in determining the appropriateness of discharging student loan debt.

We’ll continue this discussion in our next post.