Never Say Never
When prospective clients come to see me regarding bankruptcy or other forms of debt relief, I often hear it authoritatively stated “I know there is nothing I can do about my student loans.” This is NOT TRUE. While student loans are non-dischargeable in bankruptcy except under the most stringent of circumstances, there are strategies to pursue.
Most recently, a very nice person came to see me to file a Chapter 7, straight bankruptcy. She had approximately $30,000.00 in general unsecured debt. However, she had over $80,000.00 in severely delinquent student loans. Her monthly payments were about $385.00 per month and she was at least 10 months behind. Since she was working, making over $30,000.00 per year, there was no way she would qualify for the “undue hardship” exception to student loan non-dischargeability in bankruptcy. Upon reviewing the “nasty-gram” collection letters she received, I said “Well, lets pick up the phone and see what we can do.” Within 15 minutes, her loans were brought current, and she was given the opportunity to start over with a payment of $36.00 per month. While she may be paying that $36.00 per month “forever and ever, amen,” it is a solution she can live with. Quite frankly, there is a reasonably possibility that statutory or case law may change in the foreseeable future to help folks in this position.
Yes, student loans are one of the two most difficult debts to get relief from in bankruptcy (the other is unpaid payroll taxes). There is no statute of limitations, equitable relief, or legal defenses to claims for valid student loans. They are “forever.” The “undue hardship” exception is almost impossible to achieve. I recently heard a bankruptcy judge observe in open court that in 12 years on the bench he had granted only one undue hardship discharge from student loans. I obtained an undue hardship discharge for a debtor who had been rated 100% disabled by the Social Security Administration with a severe psychiatric disorder.
Without going into any more detail in legalese, if there is any possibility that a debtor in bankruptcy can pay any part of student loan indebtedness while maintaining a “minimal” standard of living, then the student loans will not be discharged as imposing an “undue hardship.”
The good news is that student loans can be included as an unsecured debt in a Chapter 13 bankruptcy and collection action must cease during the course of a Chapter 13 bankruptcy plan which lasts for up to 5 years. Unfortunately, at the end of the five year plan, the balance of the student loans are still owed, but circumstances may allow for negotiability, forgiveness, forbearance, or other relief.
The current climate among student loan debt collections has made student loan forgiveness, forbearance, and consolidation more obtainable than ever. Those going into health care professions, teaching, the military, or law enforcement, and other fields often have student loan relief available to them. To my dismay, some years ago a valued Associate Attorney of mine joined the military for the primary purpose of obtaining student loan forgiveness after serving 10 years in the military.
Prior to the bankruptcy law changes in 2005, and before that in 1998, there were circumstances and types of student loans that were dischargeable. There is a HUGE student loan problem in this country. Sooner or later, if Congress is able to do anything about anything, it is likely that reasonable and rational student loan relief will be restored to the Bankruptcy Code, and perhaps otherwise. Until then, there are creative solutions to the oppression of overwhelming student loan debt.
If you are in need of a bankruptcy attorney, call us today for a free consultation!
Do not despair. If you are overwhelmed with your student loans or have fallen behind on payments, help could be one simple phone call away.
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