Submitted by Anonymous on Mon, 10/31/2011 - 07:41
Posted in
I understand that the bankruptcy laws say I can't discharge my student loans unless I can show some undue hardship, but it seems to me that being unable to get a job and facing collections actions from crazy debt collectors should constitute an undue hardship. I'm going to have to file bankruptcy so I guess I can talk to whoever I hire about this, but it seems crazy that I don't have a job, can't pay my bills and still bankruptcy wont help me. Why is that?
Discharge of student loans.
Yes, those with large student loan debt often face aggressive collections techniques, because creditors know how difficult it is to get those loans discharged. However, there may be some reason for hope on this issue. Under the "Brunner" test (named after a prior case), to meet the undue hardship requirement and discharge student loans, debtors had to show that something amounting to a physical or mental disability was preventing them from getting a job (ANY job) and maintaining a minimal standard of living. Some courts defined that minimal standard of living as anything above the poverty line.
However, in a recent case from the First Circuit Court of Appeals Bankruptcy Appellate Panel (In re Bronsdon), the Court adopted a more reasonable "totality of the circumstances" test. The Court held that, in considering whether the debtor has an undue hardship, bankruptcy courts should consider:
"all relevant evidence–the debtor’s income and expenses, the debtor’s health, age, education, number of dependents and other personal or family circumstances, the amount of the monthly payment required, the impact of the general discharge under chapter 7 and the debtor’s ability to find a higher-paying job, move or cut living expenses.” In other words, bankruptcy courts must now consider the whole package, all of the issues faced by the debtor, and decide if the student loan payments are causing an undue hardship to the debtor OR her dependants.
Bottom line: You are right. You must talk to a bankruptcy attorney about this issue, someone who can look at your situation and give you some idea of whether your circumstances would convince a court to allow you to discharge your student loans. And, even if they do not, depending on what other debt you have, you may be able to significantly improve your situation by discharging other forms of debt. Also, keep your eyes open for some form of political solution to this issue. The government has recently begun talking about allowing students to restructure student loans to make them more manageable. Good luck.