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Bankruptcy Discharge Of Student Loans

Folks keep telling me that Bankruptcy Discharge

Of Student Loans does not/can not happen.

Even a lawyer friend I was speaking to last week.

“What?  You can get rid of student loans in bankruptcy?”

Uh, yes.  Not automatically.  Not easily.  But, yes, you can.

Chapter 7 Discharge of Student Loans

When a bankruptcy case is filed, the computer assigns it to a judge and trustee.

If you want to get your student loans discharged, you have to file a separate lawsuit, against the student loan lenders, in bankruptcy court.  You get the same judge.

You better have a lawyer.

Which is another hurdle.  Hello?  You are already bankruptcy, and now you need more dollars to pay an attorney to try to discharge student loan debt in bankruptcy.

In the 6th Circuit, which includes Michigan, where I practice, you can get a partial discharge of student loan debt.

In some Circuits, it is all or nothing.

Here in the 6th, the court will actually do an income/living expense analysis projected out over your working lifetime, to calculate exactly how much you can afford to pay on your student loan debt.

The burden is on you to show that it would be an undue hardship for you, or your dependents, for you to have to repay your student loans.

No jury trial, but like any other Federal court suit.  Discovery rules, depositions, interrogatories from the Department of Justice, if you are suing the government.  Which is the case for most student loans.

Chapter 13 Discharge of Student Loans

Chapter 13 bankruptcy is a payment plan.

The next adversary proceeding I file will be in a Chapter 13 case.  My client is 62, with custody of 3 young grandchildren, and a couple hundred thousand dollars of student loan debt.

Now, in a Chapter 13 case, attorney fees have to be approved by the Court, but, they can be paid from what you are paying the Chapter 13 trustee, so there is a source for attorney fees.

There is not much point in going through bankruptcy to come out still owing student loan debt you cannot pay.

There are income based repayment plans for government student loan debt, but, you have to keep up on the paperwork, and, any student loan debt that is forgiven is taxable income to you.

Still, it is an uphill battle, and lots, most, bankruptcy lawyers do not take these cases.

Bankruptcy law needs to be changed to make discharging student loan debt easier.

From the article linked to above:

Patricia Christel, a Navient spokeswoman, declined to comment on the specific case. She wrote in an emailed statement that the company “continues to support” reforms that would allow both federal and private student loans to be discharged in bankruptcy for borrowers who made a “good-faith” effort to repay the debt for five to seven years and still experienced financial difficulty.

Navient Again – Student Loan Servicers

Sallie Mae acquired such a bad reputation that it changed its name to Navient. But the service has not improved, as Navient is at the center of the Student Loan Servicers Mess. What Do Student Loan Servicers Do? Here is the Department of Education definition of Student Loan Servicer: A l(student) oan servicer is a company… Continue Reading

Navient & Student Loan News

Navient, formerly Sallie Mae, still on a  losing streak. Navient Shahien Nasiripour writes frequently for Bloomberg on student loan issues. So there is lots of material. Navient Corp. lost out on a lucrative government contract to collect on defaulted federal student loans late last week, disappointing previously optimistic investors. The company has collected on such debt for… Continue Reading

Student Loans And Politics

Bernie Sanders wanted free college for everyone. Well, somebody would be paying, just, not the students. The Obama administration does not like for profit colleges, among other for-profit entities it dislikes. New rules are supposed to make it easier to get rid of student loans incurred to attend fraudulent colleges/programs. President elect Trump, a big… Continue Reading

What Is Undue Hardship?

Most courts apply the Brunner test to determine whether student loan debts are dischargeable in bankruptcy. The bankruptcy code provides that student loan debt is NOT dischargeable in bankruptcy unless the debtor can prove it would be an undue hardship for the debtor to have to repay the student loan debt. So, it would be an undue… Continue Reading

Where Do Student Loans Get You?

Couple of student loan stories out today that caught my eye. College Cost Too Much Uh, yeah.  Lots have written about how the flood of student loans from the government the last decade plus has pushed college costs up way higher then the inflation rate. We spent 3% of our national output on, which is… Continue Reading

Student Loan Stuff

Well, let’s start with another measure about how bad the Student Loan situation is. Credit Sesame, a credit and loan management company, took a look at the places where the median annual income for those with a bachelor’s degree or higher is less than the average student loan balance. In short, places where graduates owe more than… Continue Reading