Removing student loans through bankruptcy
Can you get rid of student loans through bankruptcy? Will bankruptcy get rid of student loans? Listen as Attorneys Jim Monroe and Tom Olsen explain what your options are!
Patricia: Yes. My question is regarding bankruptcy. I’m looking to bankrupt just some debts, some of them old, because I really haven’t worked actively for probably the last three years or so during the recession because I was in the mortgage industry. My question is, I have a student loan that is there. I heard that they are able to be bankrupt. What is the process for that or how can that be done?
Attorney Tom Olsen: Patricia, before we get started, I’m going to turn you over to Jim Monroe, bankruptcy attorney, but other than student debt, Patricia, how much debt do you have?
Patricia: I’m going to say it may be about $15,000.
Attorney Tom Olsen: Okay. Jim, this is Patricia. What do you think about her situation?
Attorney Jim Monroe: Student loans can only be discharged if you can show hardship, but she may have a case to show hardship. If she can show that she can’t repay this within a reasonable time or that she’s now retired and this is really hampering her ability to move on, then it might be dischargeable, but you have to go into a bankruptcy court persuading a judge that you have a hardship to discharge a student loan.
Attorney Tom Olsen: Jim, that’s news to me because I hear on the news all the time that student loans cannot be discharged through bankruptcy. You’re telling me that they can be when there is a hardship. What’s your experience, how often the bankruptcy judge will grant this hardship?
Attorney Jim Monroe: That is on a case by case basis. The original court test to determine whether or not student loans are dischargeable is rather a harsh one, but it’s being revisited because of changes in the law that have occurred since that case came down. A number of bankruptcy judges have sort of expressed disdain for this old test that was granted way back.
Attorney Tom Olsen: Just out of curiosity, are you saying that the bankruptcy laws black-and-white says, “You cannot discharge student debt,” and yet, here comes a case where a judge says, “Well, hey, hold on. In spite of what the law says, you can if there’s a hardship.”
Attorney Jim Monroe: No. It says in the Bankruptcy Code, they can be discharged because of hardship. It is the interpretation of “hardship” with the Brunner case that everybody is talking about.
Attorney Tom Olsen: How did Brunner define hardship?
Attorney Jim Monroe: Well, it says that you can’t maintain your standard of living, that additional circumstances exist where you can’t repay this over a period of time and you’ve made a good faith effort to try to pay it back.
Attorney Tom Olsen: Okay. Just out of curiosity, have you done this for a client and been successful yet?
Attorney Jim Monroe: Yes, I have, over the years. Of course, I’ve been practicing now for 32 years and I’ve had successful cases where student debts were discharged.
Attorney Tom Olsen: Okay. Good to know. Thanks for sharing.