Student Loan Discharge: Bankruptcy Court Explains Undue Hardship

Bankruptcy clients usually accept the fact that student loans are not dischargeable. Some clients are aware of the "undue hardship" exception where these loans can be discharged. It is very difficult to wipe out student loans as an undue hardship. A recent bankruptcy court decision, issued in November, 2007, explained the undue hardship standard in detail and why it applies to so few debtors. The case is In Re Cynthia Matthews-Hamad, Case No. 02-15746-8W7 and Adv. Pro. No. 05-81.

The bankruptcy judge explained that there are three parts of the undue hardship test each of which the debtor must establish by a preponderance of evidence. First, the debtor must show that based on his current income and expenses he cannot maintain a "minimal" standard of living for himself and his dependents if forced to repay student loans. Minimal standard of living does not mean the debtor must live in poverty but it also does not mean the debtor is entitled to his existing comforts. Second, the debtor must establish circumstances indicating that his financial state of affairs is likely to persist for a significant portion of the loan repayment period. The debtor must show his will be unable to pay student loan debt in the future for reasons outside his control. The debtor must demonstrate circumstances that stongly suggest an inability to pay the loan over an extended period of time. The bankruptcy court stated that only a debtor with rare circumstances will satisfy this second part of the undue hardship test. Such circumstances include, for example, illness disability, or lack of suitable job skills. Finally, the debtor must show he has made a good faith effort to repay the student loan. Efforts to seek out option to make the student loan debt less burdensome is an important part of good faith.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida

Comments

[LIC]

OK But As per LIC concerned what is the need of loan.

[H. SCOTT]

.... A FEW QUESTIONS IF SOME WOULD BE SO KIND TO ANSWER .... #1 IS MY PREMARITAL STUDENT LOAN DEBT NOW CONSIDERED A JOINT ASSET/DEBT THAT WILL AFFECT MY WIFE ? ....#2 ARE MARITAL ASSETS SAFE IF A JUDGEMENT IS RULED AGAINST ME? ..... #3 CAN ANYONE ADVISE ME?

[nate]

i have compleated Bankruptcy and was told by the judge and lawyer that i did not qualify from a discharge of student loans or even a reduction. i owe 50k$ in loans and i can not even get a consolidation created to decrease my payments. in all the lenders want 700$ per month for the next 10 years to pay for all the loans. i make 2400$ a month and have a wife and 3 kids with a 1995chevey s10 and live in a 2 bedroom molde filled apartment.

please help.

[unsecured loans]

Student loan is not a bad loan. It is a loan that a student must have to secure its future. It is going to be a big help for a student to make him reach its goal.

[kerry cox]

Please someone help my mother.It is severely depressing the whole family watching her suffer through panic attacks and other severe emotional issues.She is in default,She had been foreclosed on due to all her debt and lost the family home where we were all raised as children (7 kids).She cant afford a car to get herself to work.Im afraid she is going to have a heart attack over this she is 56 years old!
I cannot believe our government is doing this us.I have prayed and prayed and have not seen the answer yet.Her debt is well over 100k but yet she makes 13$ an hour at a job your typical high school student can acquire.

If there is anyone that can help her please email me thank you so much for anything at all you might have to offer.

P.s this debt is well over 10 years old.

[missy]

I need advice. Help. My loans areover 150,000 thousand dollars and they are about to garnish my co signers wages. I don't know what to do! I'm scared and lost and so so embarassed it has come this far. I've ruined my life and my cosingers all so I could try to better myself with acollege education. If anyone can offer some advice iwould appreciateit.

[student loan consolidation]

Bankruptcy is one of the most difficult things a person has to do. The decision to file bankruptcy is a hard one.Efforts to seek out option to make the student loan debt less burdensome is an important part of good faith.