Student Loans
Student loans are one category of debt that are specifically listed as non-dischargeable in chapter 7 proceedings. However, there is an exception to this general rule. That exception is categorized under the definition of “undue hardship.”

Specifically, if the debtor can demonstrate this “undue hardship,” then student loans may be discharged. The question then becomes, what constitutes “undue hardship?”

The Ninth Circuit, in the case of In re Pena, has adopted the three-prong test used by the Second Circuit in the case of In re Brunner. These three tests, which all must be met in order for discharge of these particular student loan debts, are as follows:

(1) ... that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself and her dependents if forced to repay the 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 the student loans; and (3) that the debtor has made good faith efforts to repay the loans.

Although meeting this criteria may be difficult, significant student loan debt may be discharged in certain limited situations.