DISCHARGING STUDENT LOAN DEBT IN BANKRUPTCY IS HARD TO DO!
Many clients seeking chapter 7 and chapter 13 bankruptcy relief seek to discharge their student loans, which they find crushing. Instead of opening opportunities in life, professionals are now finding that their education holds them back due to the enormous debt they accrued in obtaining their education.
Sallie Mae believes that you cannot discharge your debt under nearly any circumstances. Sallie Mae writes on its website that:
If you're having serious trouble paying back your debt, bankruptcy is not an easy out. In fact, bankruptcy should be considered an absolute last resort. And, after all your effort, student loans are not normally included in a bankruptcy filing.
Unless you can show that your education loan payment is an "undue hardship" on you, your family, and your dependents, your student loans are ineligible for cancellation (discharge) in bankruptcy.
It is difficult to prove "undue hardship" unless you are physically unable to work and there is no chance of your making money. To discharge your student loans under this special case, you must file a separate motion with the bankruptcy court and present your situation before a judge.
However, Sallie Mae overstates its case. For most debtors, student loan debts are excepted from a bankruptcy discharge pursuant to 11 U.S.C. § 523(a)(8). The sole exception when a student loan debt may be discharged is when repayment "would impose an undue hardship on the debtor and the debtor's dependents." § 523(a)(8). Congress did not further define the term "undue hardship." As identified by the Court of Appeals for the Fourth Circuit in Educ. Credit Mgmt. Corp. v. Frushour (In re Frushour), 433 F.3d 393, 399 (4th Cir. 2005), however, "undue hardship" must be "more than the usual hardship that accompanies bankruptcy." Thus, "[i]nability to pay one's debts by itself cannot be sufficient; otherwise all bankruptcy litigants would have undue hardship." Id. Moreover, in excepting student loans from discharge, Congress made a policy choice to protect the viability of the student-loan program:
The case of In re: Robin Mason explains the current state of the law remarkably well. In that case the court held that theprogram serves valuable purposes. It affords individuals in all walks of life the opportunity to obtain an education, and with it the mobility and financial stability that an education can provide. Indeed, without the program, many people would never receive any higher education, because their credit risks would preclude them from obtaining private commercial loans. The program does not just give loan recipients . . . the major benefits of a taxpayer-funded education. As history has shown, a well-educated society is critical to our general welfare and prosperity.
It is thus understandable why Congress would "exact a quid pro quo" for government-guaranteed loans by using the undue hardship standard. Debtors receive valuable benefits from congressionally authorized loans, but Congress in turn requires loan recipients to repay them in all but the most dire circumstances. This heightened standard protects the integrity of the student-loan program and saves it "from fiscal doom." It also ensures public support for the program by preventing debtors from easily discharging their debts at the expense of the taxpayers who made possible their educations.
Accordingly, as articulated by the Court of Appeals for the Fourth Circuit, student loan debts deserve special treatment in bankruptcy because the ability to fund an education is critical to the general welfare and prosperity of the United States, and the continuation of the tax-payer funded student loanprogram is essential to affording all individuals an opportunity to obtain an education to provide for a better future.
If you need help with your debt, don’t turn to a bankruptcy mill, turn to the Washington state bankruptcy attorneys at Smith & Rosenberg, PLLC. We will examine all your bankruptcy options plus non-bankruptcy options to find the solution to your financial problems that are best for you and not for a company’s bottom line.
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