A Certainty of Hopelessness: Debt, Depression, and the Discharge of Student Loans under the Bankruptcy Code

By Hancock, Katheryn E. | Law and Psychology Review, Annual 2009 | Go to article overview

A Certainty of Hopelessness: Debt, Depression, and the Discharge of Student Loans under the Bankruptcy Code


Hancock, Katheryn E., Law and Psychology Review


I. INTRODUCTION

In 1978, Congress began to place strict limits on the dischargeability of student loans pursuant to the Bankruptcy Code, and has continued to increase these restrictions in the thirty years since. (1) Currently, courts consider whether to discharge student loans using harsh tests that require debtors to show a "certainty of hopelessness." (2) Under such rigorous standards, many deserving debtors with serious mental health problems have been denied discharge of their student loans. This paper will discuss the history of the dischargeability of student loans and the various tests currently used by the courts, as well as how mental health issues affect the outcome of dischargeability actions. Courts have struggled with mental health issues and their affect on dischargeability since the restrictions were added and will continue to do so without further guidance from Congress establishing a uniform standard for discharge.

II. THE HISTORY OF THE DISCHARGEABILITY OF STUDENT LOANS

Under the United States Constitution, Congress is authorized "[t]o establish ... uniform [l]aws on the subject of [b]ankruptcies." (3) The first legislation on the subject was the Bankruptcy Act of 1898, passed in order to give debtors the opportunity for a fresh start as well as provide uniform treatment for all debtors and creditors. (4) Government-backed student loans were decades from existence at the time, so the 1898 Code was mute on the subject. As a result, once created, student loans were generally dischargeable without limitation until 1978. (5)

Student loans were first singled out as non-dischargeable in the 1978 Bankruptcy Code, which replaced the 1898 Code. (6) As more students began utilizing the student loan program, members of Congress became concerned that too many student-debtors were filing for bankruptcy after graduation in order to discharge their student loans. (7) As a result, [section] 523(a)(8) was added to the Bankruptcy Code, stating that an individual is not discharged from debt owed "to a governmental unit, or non-profit institution of higher education, for an educational loan." (8) Exceptions included loans that "first became due before five years before the date of the filing of the petition," (9) and situations that would "impose an undue hardship on the debtor and the debtor's dependents." (10) However, Congress did not elaborate on what exactly constituted an "undue hardship," thus it became the job of the courts to do so.

The next update to this section of the Code occurred in 1990, when Congress extended the original five-year exception to seven years and applied the restrictions to Chapter 13 actions as well. (11) In 1997, the National Bankruptcy Review Commission recommended that Congress eliminate [section] 523(a)(8) altogether, arguing that discharging student loans was consistent with the policy goal of encouraging education. (12) However, this suggestion fell on deaf ears--in 1998, Congress completely eliminated the time limitation exception in [section] 523(a)(8)(A), leaving only the strict undue hardship exception that was contained in [section] 523(a)(8)(B). (13)

Most recently, the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) broadened the types of loans that were excepted from discharge under [section] 523(a)(8):

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of [Title 11] does not discharge an individual debtor from any debt --

(8) unless excepting such debt from discharge ... would impose an undue hardship on the debtor and the debtor's dependents, for--

(A)(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or

(ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or

(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • A full archive of books and articles related to this one
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

A Certainty of Hopelessness: Debt, Depression, and the Discharge of Student Loans under the Bankruptcy Code
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

    Already a member? Log in now.