Bankruptcy Lawyer Bryan W. Stone answers the question: “Can I get rid of student loans by declaring bankruptcy?”
A single mother with two young boys was only briefly able to imagine a future free of her crushing debt burden. Against all odds, the woman won her case before a bankruptcy court in Alabama. This victory, though short-lived, was a big accomplishment given how skeptical bankruptcy courts are when it comes to granting relief for student loan debt. Sadly, the educational lender appealed the decision and a district court reversed, meaning the single mother will again assume responsibility for her six figures in educational debt.
The case in Alabama involves a mother of two teenage boys who has managed to earn four different degrees. The 44-year-old woman is a public school teacher and has amassed a bachelors of science degree in chemistry, a master’s degree in learning disabilities, a master’s degree in educational leadership and a Ph.D in special education, all from Auburn University. As a result, the woman now has $112,000 in debt.
Her bankruptcy attorney argued that the debt should be forgiven because repayment created an undue hardship. The lawyer pointed out that the woman was already at the top of her pay scale in her public school district and had no hope of increasing her earnings in any substantial way. Currently, the woman was earning $60,000 a year yet was being asked to pay $915 a month to service her educational loans. Unable to make ends meet, she put her loans in deferral and pursued bankruptcy protection as a last ditch effort.
The bankruptcy court that heard her case was convinced that the woman did indeed suffer an undue hardship related to repayment of her student loans. However, the district court disagreed. That court decided that the woman voluntarily entered into the student loans and ought to be held financially responsible as a result. Specifically, the court claimed that the woman failed to demonstrate a “certainty of hopelessness” as required by previous bankruptcy cases and, as a result, the loans could not be discharged.
According to the district court, the woman failed to meet the second element of the three part Brunner Test, which was established as a way of proving undue hardship. The Brunner Test says that while student loans are presumed to be non-dischargeable, there is a narrow exception if student loans are shown to pose an “undue hardship on the debtor and the debtor’s dependents.” In these cases, discharge is allowed. To pass this test, the debtor must show three things: 1) that the debtor cannot maintain a minimal standard of living for him or herself and him or her dependents if forced to repay the loans; 2) that the state of affairs are likely to persist for a significant portion of the repayment period; and 3) that the debtor has made good faith efforts to repay the loans.
Here, the district court disagreed with the proof offered for the second item, saying that the woman failed to show that her situation was sufficiently hopeless. She could, for instance, relocate to a different, higher paying school district. She could also use her degrees to find new work or take on additional jobs. The court said that though the woman may have showed an inability to meet her financial obligations at the present, discharge cannot be granted until a certainty of hopelessness is proved.
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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