Law Offices of David P. Leibowitz LLC
Lakelaw is a registered assumed name for Law Offices of David P. Leibowitz LLC
Clients frequently ask “Can bankruptcy eliminate student loans?” It’s a good question. If you don’t pay a student loan, the lender can garnish your wages. The lender can intercept your income tax refund. You are treated very harshly.
The simple answer is that you can’t get rid of a student loan in bankruptcy unless paying the student loan is an “undue hardship.” That doesn’t sound so bad. But it is. Your idea of what “undue hardship is” and the courts’ idea are different.
Most bankruptcy courts adopt the so-called Brunner standard – named after a case from New York. In this case, the court decided that the student-loan borrower had to prove three things to prove “undue hardship” and get a discharge of the student loan:
This is a very difficult standard to prove. You have a better chance if many years have passed since your education and you’ve been unable to get work. You have a better chance if you have some sort of permanent disability. You have a better chance if you’ve tried hard to pay this loan off over a period of time.
If you seek a discharge of a student loan, you need to be prepared to file a separate lawsuit in addition to your bankruptcy. Ironically, this costs money – and you probably don’t have very much money to begin with if you are considering bankrutpcy and struggling over paying a student loan.
Catch 22 is alive and well.
People don’t always realize that you don’t have to be a student to be liable on a student loan. For example, if you are a parent who assumed personal liability on a student loan, you are subject to the same limitations and restrictions as you would have been as a student liable on a student loan.
These are difficult questions. Lakelaw helps debtors with student loans. Call us at 1 866 LAKELAW.
Clients ask me “I have big student loans – can bankruptcy help?” Frequently, student loans are only a part of the client’s problem. People also have a great deal of credit card debt to go along with the student loan.
Sometimes, the client’s education has paid off. The client has a high-paying job. Such clients need to consider filing chapter 13 if they can’t keep up with their debts. In chapter 13, they can establish a monthly payment to the chapter 13 trustee. Over a period of five years, the unsecured debt will be satisfied. And progress will be made on the student loan. With other unsecured debt satisfied, the debtor can concentrate on paying the student loan.
Sometimes, the client’s education has not paid off. The client has a low paying job or no job at all. Chapter 7 can eliminate the non-student loan debt. However, unless the debtor is facing a “substantial hardship” the debtor is still obligated to pay the student loan – possibly for a very long time.
Unfortunately, it is very hard to establish a “substantial hardship” – essentially the debtor has to be in such bad straits that he or she will never be able to satisfy the loan – usually because of a serious disability.
To establish this condition, you literally would have to sue your lender. You’d have to contend that you can’t live, even minimally, while paying the loan, and that your situation is unlikely to change for the foreseeable future. It’s a catch-22. You can’t afford to pay the student loan. And you can’t afford to pay an attorney to file a suit to establish that you can’t pay the student loan.
If student loans are part of your problem, don’t be afraid to call us – we can be part of the solution.