By Monette Cope Attorney Junior Partner
Most student loans are nondischargeable in bankruptcy unless a debtor can show that repayment of the loans will cause the debtor an “undue hardship”. The Eighth Circuit is the only Circuit that does not apply the three prongs set out in Brunner v. New York State Higher Education Services Corp. As the test of undue hardship. Rather, it employs a “Totality of the Circumstances” test which looks in part at “the debtor’s past, present and future financial resources”. In Conway v. National Collegiate Trust (In re Conway), the debtor filed for Chapter 7 bankruptcy in 2009, obtained a discharge, and then reopened the bankruptcy in 2011 to seek a discharge of her student loans. While she had other student loans, the only ones that were considered at trial were fifteen loans owing to one private loan holder. She graduated with a B.A. in Media Communications in 2005, had held two full-time jobs, but was laid off of each one.
At the time of the trial, she held two part-time jobs as a server in restaurants. The bankruptcy court denied her a discharge of her student loans, finding she had at least 30 years to establish herself in the world of work and that her future financial resources should allow her to pay her student loans. While not disturbing the factual findings upon which the bankruptcy court found that the debtor will have reasonably reliable future finances to pay, the Bankruptcy Appellate Panel (B.A.P.) reasoned differently. Instead of looking to future possibilities, the court stressed it could not engage in speculation, and looked only to the debtor’s past and current earnings as evidence of what she may make in the future. The 8th Circuit B.A.P., in accordance with most other courts, stated in Conway that it had no authority to grant partial discharges of student loans. It then turned around and found a way to do it. The case was reversed and remanded to the bankruptcy court to individually determine the dischargeability of each of the fifteen student loans in light of the debtor’s current yearly income.
This is a stunning ruling because it effectively prevents a bankruptcy court in the 8th Circuit from looking at any evidence of future earning potential other than a debtor’s past and current income. So, if a highly trained professional chooses to work part-time in a low-paying job and establishes a pattern of low earnings, is the court only to look at those earnings in determining a future ability to earn and pay student loans? Can future income potential still be part of the totality of circumstances test?
While this case is only applicable to bankruptcy cases in the 8th Circuit, courts in other circuits may start to relax their analysis of the undue hardship test in Brunner.
 11 U.S.C. §523(a)(8).
 831 F.2d 395, 396 (2d Cir. N.Y. 1987).
 Reynolds v. Pa. Higher Educ. Assistance Agency (In re Reynolds), 425 F.3d 526 (8th Cir. Minn. 2005).
 495 B.R. 416(8th Cir. BAP 2013) ( affirmed June 2014 by 8th Cir.).
 Id., at 423
 Id., at 424.