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Discharge of student loans due to permanent disability and hardship

Brewster, MA |

Became disabled in 2006 due to severe degenerative disc/joint disease. I have had 3 surgeries on one hand, and two on the other. In 2007, I had extensive surgery on my lower spine. It was fused and decompressed, and has hardware in it. In 2008, my left knee was totally replaced, and in 2010 the right one was. My spine continues to degenerate due to arthritis. I was diagnosed with fibromyalgia in 2010, and just recently with hypothyroidism. I read a woman in New Jersey had student loans discharged, (approx. $79,000), and received a bill from IRS for $25,000 for taxes on discharged amount. It is definite I will not work again. I also have some neurological and cognitive decline. I was a social worker. I owe $180,000, and climbing. I make less tan $12,000 a year on SSDI. I need help with this

Attorney Answers 3


You have identified two distinct issues involved with discharge of student loan obligations. First, is if you can discharge the student debt. It appears you make a convincing case to discharge debt in bankruptcy. However, discharge of student loan debt involves commencing a seperate lawsuit in bankruptcy and the government usually contests dischargebility which means you will be enmashed in litigation trying to prove your inability to pay in accord with the Federal Rules of Evidence - merit does not absolve having to prove facts in accord with the law.

The second issue is forgiveness of debt income. If you are insolvent, then there is no forgiveness of debt income though you may need the help of a tax professional to make sure of it.

You may be best off avoiding bankruptcy and go through the administrative process and have the student loan agencies deem you uncollectible . I know the debt being undischarged is a constant irritant but may be easiser than going through the process of trying to discharge the debt in bankruptcy and then satisfy the IRS not to tax you. . Alternatively, you may want to see if a local aid society is willing to help you.

Good luck.

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Attorney Weinberg is absolutely correct. I'll add two points. Given your SSDI status, I don't think that proving the "undue hardship" will be terribly difficult although it remains a separate law suit having addional fees, within a bankruptcy case.

Attorney Weinberg also pointed you in a non-bankruptcy direction and I strongly second that suggestion. You can apply for an administrative "Total and Permanent Disability (TPD)" discharge without having to file bankruptcy. Your SSDI status makes me very optimistic for your TPD application.

I’m Jed Berliner, a Massachusetts bankruptcy and foreclosure defense attorney.

I send letters of representation to creditors immediately, unless there is some special circumstance. A letter from a lawyer has a different meaning. It means you're serious about a bankruptcy filing, and that a bankruptcy is (usually) about to happen. My letters instruct creditors to call me instead of my clients, and I can put some money in my clients' pockets if creditors ignore that instruction.

For more free bankruptcy information, go to

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Attorney Weinberg is dead-on. However, I will add this: forgiveness of debt results in "phantom income" as far as the IRS is concerned, and you will be taxed on the amount of debt cancelled as if it were income you received in your pocket. There are very few remedies in the Internal Revenue Code to escape that treatment. However, if you file a bankruptcy petition in the same year, and the debt is discharged in bankruptcy, then no cancellation of debt income occurs. So, first try the non-bankruptcy hardship process, and if you are successful, make sure you talk to a competent tax advisor to see if you will be taxed on the cancelled debt; and whether you can avoid it by making proper declarations on your tax return; and if not, see a bankruptcy lawyer in the same tax year to get it discharged in bankruptcy.

Attorney Mike Tremblay 508-485-4500

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