Bankruptcy and Student Loans in 2016

Now that we have entered into 2016, will we see a shift in Chicagoland consumers’ ability to discharge student loans in bankruptcy? As many of us know, it is extremely difficult, although not impossible, to discharge student loans when you file for Chapter 7 bankruptcy. However, according to a recent article in the Huffington Post, it is looking as if more Americans are finding it possible to get rid of their student loans—including federal student loans—by filing for consumer bankruptcy. What is the story, and is it applicable to a wide variety of debtors?
Consumers with Student Loan Debt
As the article points out, many people continue to voice concerns about filing for bankruptcy due to student loan debt. Although many debtors have not taken the kinds of steps necessary to have their student loans discharged through a Chapter 7 bankruptcy filing, a recent case suggests that it is not an impossible task.
To better understand the types of situations in which bankruptcy courts are discharging federal and private student loans, it is important to take a closer look at the facts of a recent case discussed in the article. The situation concerned a student who enrolled in college for the first time in 1994. At the time of filing for bankruptcy, the debtor was an unmarried woman with no dependents in her mid-thirties. Over the last couple of decades, she has sought treatment for various mental health issues, including depression, anxiety, eating disorders, and self-harm. Due to these mental health issues, the debtor’s academic work and employment have been impacted negatively.
To give you a better sense of the type of debt owed and the ways in which the debtor attempted to repay it, we will provide a brief timeline of the debtor’s educational and employment history. As we mentioned, she enrolled in college for the first time in 1994 and transferred to another university in 1995 to be closer to family. At that second university, she attended either part-time or full-time until 2002. In 2002, she received a bachelor of arts degree. After that time, she enrolled briefly in community college and obtained pre-pharmacy credits, and then she enrolled in a chiropractic medicine school in 2007, which she attended for over a year (but left without finishing the degree). By this time, the debtor had accrued more than $200,000 in student loans. Nearly $60,000 of debt involved federal loans, while the rest of the debt was owed to private lenders.
In late 2008, the debtor began working at a women’s health clinic but changed jobs within a year. She started to suffer from depression and took medical leaves of absence. She eventually filed for Chapter 7 bankruptcy.
Personal Bankruptcy Can Lead to a Student Loan Discharge
When the case discussed above came before the bankruptcy court, the court determined that “excepting the educational loan debts Debtor owed . . . from discharge would impose an undue hardship on Debtor.” This “undue hardship” standard is one that has been discussed a lot as a standard that is especially difficult to meet. But according to the court in this recent case, the fact that the debtor “probably” could make future payments on her loans was not enough to mean that she did not meet the undue hardship standard. Rather, the court emphasized that the debtor was “not likely” to make future payments given her history, and the court decided to discharge the student loans.
While no two cases are alike, the recent case suggests that the undue hardship standard for discharging student loans may in fact be feasible for debtors to meet. If you have questions about discharging student loans through bankruptcy, you should discuss your case with an experienced Oak Park bankruptcy attorney as soon as possible. Contact the Emerson Law Firm today to learn more about our services.
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