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Bankruptcy Law/bankruptcy and student loans

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Expert: - 12/29/2007


Question
Hi,

This past year I applied for and received a bankruptcy discharge for medical and credit card bills. I have student loans (both federal and private) in excess of 100,000. My bankruptcy attorney said that my loans were not dischargeable. However I did read that some student loans can be dischargeable if it would cause an undue hardship. Given that my monthly payments will be in excess of 1000 and I have a job that only pays 39,000 yearly, and am already having trouble paying the loans, could this be considered undue hardship, or is the law so strict that I pretty much have no hope?
Thank you
Lori

Answer
I am sorry to tell you the chances of someone discharging  student loans is not very good. If a person does not qualify for the hardship discharge, there is still hope. You may be eligible for help through a federal loan consolidation program geared to allowing a person to pay based on what they can afford. Check out: http://www.ed.gov/programs/wdffdl/index.html

However, below I have described the process for seeking hardship discharge in bankruptcy:

Student loans can be discharged but only upon a showing that not discharging the loan would be an undue hardship upon the debtor and any dependents of the debtor. Unfortunately, the process of seeking the undue hardship exception is extremely difficult for most debtors. The process entails filing a lawsuit against the creditor, and the debtor has the burden of proof. Such suits are very complicated and time consuming to pursue, and the assistance of legal counsel can be very necessary but very expensive.

Court decisions that find undue hardship for the debtor have been extremely rare in the reported case decisions. A review of the reported court decisions in this area will disclose that most undue hardship discharges that have been granted typically go to individuals that suffer from some type of very severe permanent and total disability or some sort of permanent disability that drastically restricts the ability of the debtor to more than a subsistence level of income. The courts require a finding that the debtor has proven each of the following three elements:

That the debtor cannot maintain, based upon current income and expenses, a “minimal” standard of living for himself and his dependents if compelled to repay the student loans; and

That additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and

That the debtor has made good faith efforts to repay the student loans.  

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Los Angeles Bankruptcy Lawyer Leon D. Bayer

Expertise

Leon Bayer has successfully represented clients in bankruptcy for over 30 years. He is frequently called upon by the media, the California Bar and other associations to provide insight and help educate attorneys on bankruptcy issues. If you or other readers want to keep up with my blog postings about life in and out of bankruptcy, you can follow my blog at http://www.bankruptcyblogger.org/ and my personal web site at http://www.debt-relief-bankruptcy.com and A Human Guide to Bankruptcy at http://www.thebankruptcyguide.net/ Leon also writes about bankruptcy law for Nolo, see http://www.nolo.com/law-authors/leon-bayer.html and his "Ask Leon" bankruptcy law blog column at http://blog.nolo.com/bankruptcy/

Experience

Leon is a Certified Specialist in Bankruptcy Law by the State Bar of California, and has been a practicing bankruptcy lawyer in Los Angeles, California for 33 years.

Organizations
National Association of Consumer Bankruptcy Lawyers, California Bar Association, Los Angeles County Bar Association.

Publications
Author, ?The Essentials Of Chapter 13,? Daily Journal Report, December 18, 1987.
Contributing Editor, Basic Bankruptcy, California Practice Handbook, Matthew Bender 1992, 1993.
CEB Consultant, CEB-Personal and Small Business Bankruptcy Practice in California, 2003.


Education/Credentials
B.A., J.D.

Awards and Honors
President, 1995-1996-Los Angeles Bankruptcy Forum; Member - Los Angeles County Bar Association Committee on Commercial Law & Bankruptcy, 1988. Law Advisory
Commission-Personal & Small Business Bankruptcy Law of the State Bar of California, 1996-2000

MR. BAYER SAYS: The big banks and credit card companys have been working overtime for many years to undermine the Consitutional right of the American people to be able to claim bankruptcy protection. In 2005 the banking lobby successfully convinced Congress and the President to make the laws and proceedures more complicated, hopeing that it will stymie legitimate people from filing bankruptcy. They succeeded in gaining these complex new legal proceedures by greasing the legislative system with hundreds of millions of dollars in "campaign contributions." The good news for the American people is that while the new laws have made the proceedures needlessly complex to the point where inexperienced people can't help but trip over the maze of new rules and regulations, the process is still doable, especially with a lawyer who is well trained and experienced in this specialty.

Past/Present Clients
I have probably handled something on the order of about 15,000 bankruptcy cases thropughout my career.

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