Law Office of John Bristol - 1776 N. Pine Island Road, #224, Plantation, Florida 33322 (954) 475-2265
A Student Loan Can be Discharged in Certain Circumstances
Since 1988, Fort Lauderdale Bankruptcy Attorney Center of John Bristol has filed more than 5,000 consumer Chapter 7 Bankruptcy and Chapter 13 Bankruptcy Cases in the Fort Lauderdale area (the Southern District of Florida). As a Fort Lauderdale Bankruptcy Attorney; John concentrates his Bankruptcy law practice only in Broward County. We offer PAYMENT PLANS and give FREE CONSULTATIONS (954) 475-2265
Bankruptcy Code Section 523(a)(8) contains a presumption that qualified student loans will not be discharged, and although the presumption can be overcome by a debtor who shows "undue hardship," bankruptcy courts often seek to have debtors take advantage of federal programs to delay payment, rather than grant a discharge. However, when a debtor is disabled, and there does not appear to be recovery within a reasonable period, courts have favored discharge.
Section 523(a)(8) of the Bankruptcy Code states: unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents, for--(A)(i) an educational benefit over payment 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 exception to discharge was enacted to save the student loan system and to prevent undeserving debtors from obtaining a discharge of their college debts shortly after graduation. The debtor's required burden is to show "undue hardship" by the preponderance of the evidence. The burden is rigorous and the hardship must be more than just financial adversity. Once the debtor has made its burden, student loan debt will only be discharged if there is a subsequent finding made by a bankruptcy court, prior to the court's discharge of the debt. The most quoted Bankruptcy case for discharge is In Re: Brunner.
Fort Lauderdale Bankruptcy Attorney Center
Law Office of John Bristol
1776 N. Pine Island Road, Suite 224, Plantation, Florida 33322
(954) 475-2265 - J@Jbristol.com
Fort Lauderdale Bankruptcy Attorney John Bristol has filed more than 10,000 Bankruptcy cases in Florida since 1988. We concentrate Now our law practice on Chapter 7 Bankruptcy (liquidation) and Chapter 13 Bankruptcy (personal reorganization) cases in the Fort Lauderdale and Broward County area
Student loans are difficult, but not impossible, to discharge in bankruptcy. To do so, you must show that payment of the debt “will impose an undue hardship on you and your dependents.” Courts use different tests to evaluate whether a particular borrower has shown an undue hardship.
The most common test is the Brunner test which requires a showing that 1) the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for the debtor and the debtor’s dependents if forced to repay the student loans; 2) 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) the debtor has made good faith efforts to repay the loans. (Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987). Most, but not all, courts use this test. A lot has changed since this 1987 court decision and some courts have begun to question whether they should use a different standard. For now, all federal courts of appeal except the First and Eighth Circuits have adopted the Brunner test.
If you can successfully prove undue hardship, your student loan will be completely canceled. Filing for bankruptcy also automatically protects you from collection actions on all of your debts, at least until the bankruptcy case is resolved or until the creditor gets permission from the court to start collecting again Assuming you can discharge your student loan debt by proving hardship, bankruptcy may be a good option for you. It is a good idea to first consult with a lawyer or other professional to understand other pros and cons associated with bankruptcy. For example, a bankruptcy can remain part of your credit history for ten years. There are costs associated with filing for bankruptcy as well as a number of procedural hurdles. There are also limits on how often you can file for bankruptcy.
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Whether a student loan is discharged based on hardship is not automatically determined in the bankruptcy process. You must file a petition (called an adversary proceeding) to get a determination. This sample gives you an idea of what your complaint should look like. If you already filed for bankruptcy, but did not request a determination of undue hardship, you may reopen your bankruptcy case at any time in order to file this proceeding. You should be able to do this without payment of an additional filing fee. Chapter 11 of NCLC’s Student Loan Law publication includes extensive information about discharging student loans in bankruptcy.
It is up to the court to decide whether you meet the “undue hardship” standard. Here are a few examples of successful and unsuccessful cases.
A number of courts have granted discharges in cases where the borrower did not benefit from the education or went to a fraudulent school. There have been mixed results when borrowers have tried to show that their financial difficulties will persist into the future. For example, one court found that a borrower’s alcoholism was not an insurmountable problem, but some borrowers have won these cases. In one case, a borrower’s testimony about her mental impairment, including evidence that she received Social Security benefits, was enough to convince the court of undue hardship. The court agreed with the borrower that her ongoing mental illness was likely to continue to interfere with her ability to work.
In finding undue hardship in a 2011 case, the judge found that a 58 year old and 60 year old couple’s past employment experience showed no likelihood that their financial circumstances would change for the better before they reached retirement age. The judge also considered accrued post-bankruptcy medical expenses in the amount of $22,000. There was nothing in the record to suggest that the medical debt would be forgiven. Both borrowers suffered from various medical ailments. Although there was no medical expert testimony of disability, the borrower’s own testimony was sufficient to who that their health problems limited future employment prospects.
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The Law Office of John Bristol, 1776 N. Pine Island Road, #224, Plantation, Florida 33322 is a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
Most courts have found that borrowers do not have to be at poverty level income to prove “undue hardship.” A 2014 court described a “minimal standard of living” as somewhere between poverty and “mere difficult.” Even if you cannot prove undue hardship, you still might want to consider repaying your student loans through a Chapter 13 bankruptcy plan.
A case under chapter 13 is often called “reorganization.” In a chapter 13 case, you submit a plan to repay your creditors over time, usually from future income. These plans allow you to get caught up on mortgages or car loans and other secured debts. If you cannot discharge your student loans based on undue hardship in either a chapter 7 or chapter 13 bankruptcy, there are still certain advantages to filing a chapter 13 bankruptcy. One advantage is that your chapter 13 plan, not your loan holder will determine the size of your student loan payments. You will make these court-determined payments while you are in the Chapter 13 plan, usually for three to five years. You will still owe the remainder of your student loans when you come out of bankruptcy, but you can try at this point to discharge the remainder based on undue hardship. While you are repaying through the bankruptcy court, there will be no collection actions taken against you. You may have other options, depending on how judges decide these cases in your judicial district. For example, some judges allow student loan borrowers to give priority to their student loans during the Chapter 13 plan. You should discuss these options with a bankruptcy attorney.
The Resources section has more information about finding a lawyer to help you. When shopping around for a lawyer, make sure that you let the lawyer know that you want to discharge your student loans in bankruptcy. You should ask a lot of questions to see if the lawyer understands this process. It is not as straightforward as filing a regular Chapter 7 bankruptcy petition. You should assume the lawyer is not knowledgeable in this area if he tells you that student loans cannot be discharged in bankruptcy. The truth is that you can discharge your student loans if you can prove undue hardship. You should always have an opportunity to talk to a lawyer before you pay anything. Make sure you have a clear idea of what the lawyer will do for you and what you will be charged. From Student Loan Assistance.Org
In the most extreme circumstances of financial hardship, declaring student loan bankruptcy could be a way to eliminate or reduce outstanding debts that you can no longer afford to pay. Unfortunately, however, the discharge order is unlikely to initially include student loans. Student loan debt is exempt from the same treatment unless you can prove an “undue hardship.”
Chapter 13 bankruptcy can help provide relief from paying off your student loan debt in the short term with reduced monthly payments. But you’re still on the hook for whatever loan balance is left after your bankruptcy repayment period ends. Similarly, your student loan debt won’t be wiped away if you file for Chapter 7 bankruptcy, and you’ll still be responsible for paying.
How student loan bankruptcy discharge works
It’s generally very difficult to discharge your student loans through a normal bankruptcy process. At first, the court will deny your request to discharge your student loans in the bankruptcy filing.
In fact, you’ll have to file a separate adversary proceeding, or Complaint to Determine Dischargeability, under your Chapter 7 or Chapter 13 bankruptcy case. Under this proceeding, you’ll have to prove that student loans create “undue hardship.” You can typically hire a law firm to do this on your behalf for a few hundred dollars.
According to the Federal Student Aid website, most courts use the Brunner Test to determine undue hardship. To qualify, you must meet all of the following criteria: You wouldn’t be able to maintain a minimal standard of living if you were forced to repay the loan.; Your financial hardship would continue for a significant portion of the repayment period if you were forced to repay the loan.; You’ve made a good-faith effort to repay the loan before you filed for bankruptcy;vvIf your student debt is from attending a for-profit trade school, you also might be able to raise a defense related to the school’s practices. If you can prove there was a breach of contract, deceptive practices, or similar issues, you could have a better chance of convincing a judge to discharge student loans.
All of this involves a lawsuit, legal fees, and court battles and your student loan creditor may fight against these charges. But for filers who can make a strong case for student loan bankruptcy, it can be worth it. If your student loan is discharged, you won’t have to repay any of the debt. While it’s possible to discharge student debt in this way, student loans and bankruptcy still rarely meet in the real world. But when they do, filers have a decent chance of being granted a discharge of student debts.
Bankruptcy filers should at least consider if they are a good candidate for student loan bankruptcy discharge. Debtors who successfully discharged student debt were more likely to be unemployed, have low income leading up to filing, and have medical debt in addition to student loans, according to Iuliano.
If that sounds like you, or if your student debt was incurred while attending a for-profit school, your chances of a successful student loan bankruptcy outcome may be better. You should consider all of your options when trying to eliminate your student loan debt, like income-based repayment (IBR) or even student loan forbearance. You can also get your student loan debt discharged via Public Service Loan Forgiveness by working in certain industries that provide public benefit, like teaching.
According to a study, 99% of bankruptcy filers do not try to dischage student loan debt. But when they do, filers have a decent chance of being granted a discharge of student debts. According to a conducted by Jason Iuliano, a Princeton political science Ph.D. candidate who has a degree from Harvard Law School, nearly 40 percent of debtors who request student loan discharge in bankruptcy are approved in a court of law.While this rate of discharge is decent, Iuliano states that “99.9 percent of student loan debtors in bankruptcy never attempt to get a discharge.” The vast majority of filers with student debt will not even participate in the process to determine whether they could qualify to discharge student loans. From Student Loan Hero.com