Recent Student Loan Bankruptcy Case Could be Good News for Debtors
Debtors in Oak Park who are considering personal bankruptcy to discharge student loans should learn more about a recent bankruptcy case in New York. Although this case is not binding in Illinois, it demonstrates that bankruptcy judges are thinking about the “undue hardship” requirement in more flexible ways, allowing debtors to discharge student loan debt in a Chapter 7 bankruptcy case. According to a recent article in Forbes, this bankruptcy case involving the discharge of student loan debt could be a sign that bankruptcy courts across the country will begin looking at student debt a bit differently in Chapter 7 bankruptcy cases. Let us tell you more about the case.
Chapter 7 Bankruptcy Case Involves Discharge of $221,000 in Student Loans
The recent bankruptcy case discussed in Forbes involved the discharged of $221,000 in student loan debt. Many debtors in Illinois and across the country have heard that it is difficult—and maybe even impossible—to discharge student loan debt in a bankruptcy case due to the debtor’s frequent inability to meet the requirements of the “undue hardship” test or other measures used to determine whether student loan debt is eligible for discharge. Indeed, according to the article, since an “undue hardship” is not expressly defined in the U.S. Bankruptcy Code, “federal judges have created tests and standards to determine whether a borrower’s financial circumstances warrant a discharge.” By and large, “these tests, which were established by precedent-setting legal cases more than 20 years before the student debt crisis became a national issue, are often extraordinarily difficult for borrowers to meet.”
However, as the article points out, “the recent case out of New York may provide student loan borrowers with some hope.” While debtors often avoid even attempting to discharge student loan debt in a Chapter 7 bankruptcy case due to concerns about the difficulty of doing so and the complications of engaging in an adversary proceeding, the recent case suggests that bankruptcy judges may be thinking about student loan debt discharges a bit differently. To explain, we want to tell you more about the facts of the recent case.
Student Loan Debt is Dischargeable in a Liquidation Bankruptcy
In the recent case, the debtor initially took out a total of $116,000 in student loans. As the debtor attempted to repay those loans, he earned a “perpetually low income.” Over a multi-decade period, due to the debtor’s inability to make large payments on the loan balance, the total balance grew to approximately $221,000—to be clear, it nearly doubled due to interest. When the debtor filed for consumer bankruptcy, he provided documentation to show the bankruptcy court that he was “perpetually underwater in terms of his income versus his expenses.” Despite his low income and financial difficulties, the debtor made attempts to repay his student loans “at various points” over the 20- to 30-year period.
The judge in this bankruptcy case notably “rejected the rigidity of the undue hardship standards established by prior courts” and ruled that the debtor had met any necessary undue hardship requirements. The judge expressly states that the bankruptcy court would “not participate in perpetuating . . . myths” about the non-dischargeability of student loan debt. To be clear, student loan debt is dischargeable in a Chapter 7 case.
Contact an Oak Park Bankruptcy Attorney
If you have questions about discharging student loan debt in your bankruptcy case, an experienced Oak Park bankruptcy lawyer can help. Contact the Emerson Law Firm today.
See Related Blog Posts:
How Elizabeth Warren’s Plan Would Change Bankruptcy Laws
Do I Need to Tell My Creditors When I File for Bankruptcy?
Chapter 7 Bankruptcy Case Involves Discharge of $221,000 in Student Loans
The recent bankruptcy case discussed in Forbes involved the discharged of $221,000 in student loan debt. Many debtors in Illinois and across the country have heard that it is difficult—and maybe even impossible—to discharge student loan debt in a bankruptcy case due to the debtor’s frequent inability to meet the requirements of the “undue hardship” test or other measures used to determine whether student loan debt is eligible for discharge. Indeed, according to the article, since an “undue hardship” is not expressly defined in the U.S. Bankruptcy Code, “federal judges have created tests and standards to determine whether a borrower’s financial circumstances warrant a discharge.” By and large, “these tests, which were established by precedent-setting legal cases more than 20 years before the student debt crisis became a national issue, are often extraordinarily difficult for borrowers to meet.”
However, as the article points out, “the recent case out of New York may provide student loan borrowers with some hope.” While debtors often avoid even attempting to discharge student loan debt in a Chapter 7 bankruptcy case due to concerns about the difficulty of doing so and the complications of engaging in an adversary proceeding, the recent case suggests that bankruptcy judges may be thinking about student loan debt discharges a bit differently. To explain, we want to tell you more about the facts of the recent case.
Student Loan Debt is Dischargeable in a Liquidation Bankruptcy
In the recent case, the debtor initially took out a total of $116,000 in student loans. As the debtor attempted to repay those loans, he earned a “perpetually low income.” Over a multi-decade period, due to the debtor’s inability to make large payments on the loan balance, the total balance grew to approximately $221,000—to be clear, it nearly doubled due to interest. When the debtor filed for consumer bankruptcy, he provided documentation to show the bankruptcy court that he was “perpetually underwater in terms of his income versus his expenses.” Despite his low income and financial difficulties, the debtor made attempts to repay his student loans “at various points” over the 20- to 30-year period.
The judge in this bankruptcy case notably “rejected the rigidity of the undue hardship standards established by prior courts” and ruled that the debtor had met any necessary undue hardship requirements. The judge expressly states that the bankruptcy court would “not participate in perpetuating . . . myths” about the non-dischargeability of student loan debt. To be clear, student loan debt is dischargeable in a Chapter 7 case.
Contact an Oak Park Bankruptcy Attorney
If you have questions about discharging student loan debt in your bankruptcy case, an experienced Oak Park bankruptcy lawyer can help. Contact the Emerson Law Firm today.
See Related Blog Posts:
How Elizabeth Warren’s Plan Would Change Bankruptcy Laws
Do I Need to Tell My Creditors When I File for Bankruptcy?
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