Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “Can I get rid of student loans by declaring bankruptcy?”
Rapper Dee-1’s newly-released music video opens with a simple statement: “Student loan debt is out of control. In the U.S., over $1.2 trillion is owed in student loans.”
The screen fades to black. A new screenshot explains that after months of eking out the minimum payments on his undergraduate loans, New Orleans rapper Dee-1 signed a record deal. He decided to use a chunk of this money to pay off the rest of these loans.
What happens next is a scene that anyone living with crippling student loan debt can imagine: the artist emerges from the student loan office, joyfully makes it rain money for the beleaguered-looking students waiting in the loan line, and jumps straight into the song, the chorus of which threatens to become anthem:
“No sir I don’t drive a Maybach, but guess what I did: I FINISHED PAYING SALLIE MAE BACK.”
The point Dee-1 makes is a good one, driven home further by the obvious reality that most people don’t earn record deals that provide the option of paying off student loans in full. Student loan debt is out of control for both the country-wide economy and countless individuals. Borrowers who never finish their degrees can still rack up thousands in debt that will grow exponentially in the years to come. The burden of student loan debt prevents many of the 40 million Americans carrying it from buying cars, houses and fueling overall growth of the economy.
Student loan debt can also have a debilitating effect on a person’s individual life.
Many people are under the mistaken impression that student loan debt can never be discharged, or cancelled, through bankruptcy. Although usually exempt from being dischargeable, it can be possible to have your student loans forgiven in part or in full if you can prove “undue hardship.” This can be extremely difficult, however.
One recent bankruptcy case out of California discharged over a quarter of a million dollars of student loan debt for a 56-year old attorney.
The plaintiff was obviously not part of the population struggling to pay off loans for an unfinished degree without the increased earning potential from a diploma—the man is an attorney. So how did this happen?
Congress has been tightening down on the rules of discharging student debt since the 1970s, and proving sufficient hardship to the courts is tough. The courts and lawmakers do not want to open the floodgates to thousands of students.
Almost all of the federal courts of appeals, including the Fourth Circuit, which covers North Carolina, and the Ninth Circuit, which covers California, have adopted what is called the Brunner Test to determine whether a borrower will have undue hardship sufficient to discharge student loans. This test has three factors:
- If the person were forced to repay the loan, they would not be able to maintain even a minimal standard of living
- Evidence exists that this hardship would continue for a significant part of the loan repayment period
- The person has made good faith efforts to repay the loan before they filed for bankruptcy (i.e., you have been in repayment for a requisite amount of time)
The California attorney is an unmarried man who has been practicing law since 1987. At one point he earned $165,000 a year as a securities attorney, but that ended in 2007. Besides one other 2-year stint of steady employment since, the man has struggled to make more than $10,000 a year in his own practice.
The bankruptcy court noted that the man did not live extravagantly, paying $750 a month in rent and driving an older car. He did not have a savings or retirement account.
To ask the court to discharge student loans during a bankruptcy, you have to bring a separate action in your bankruptcy case called a Complaint to Determine Eligibility.
Dee-1’s video of Sallie May Back can be found here: https://www.youtube.com/watch?v=JqbXQa05Z6c
If you are contemplating bankruptcy in the Charlotte area, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with legally sound advice for your particular situation.
About the Author
Kyle Frost joined Arnold & Smith, PLLC in 2013 where he focuses his practice on all aspects of civil litigation and bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.
Born and raised in upstate New York, Mr. Frost attended the University at Albany on a Presidential Scholarship, graduating magna cum laude with a double major in Political Science and Sociology. He went on to attended Wake Forest University School of Law in Winston Salem, North Carolina.
Following college, Mr. Frost spent over a year teaching English in South Korea. He worked in a private school in Seoul developing curriculum, English programs, and educating both children and adults that were interested in learning a new language.
In his spare time, Mr. Frost enjoys homebrewing, fishing, and travelling.
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