An unemployed 65-year-old man, acting as his own attorney, has spent three years appealing his way to the Boston federal court that is now hearing his case. Not only will a win relieve him of hundreds of thousands of dollars in student loan debt, the verdict could fundamentally change the way U.S. bankruptcy courts handle borrowers who cannot repay their student loans.
While most consumer debt is discharged in bankruptcy, federal rules make it nearly impossible for borrowers to eliminate their student loan debt. In the 1970’s, Congress added new rules to the law that excluded most student debt from that relief. Anyone trying to discharge student loan debt in bankruptcy must prove that repaying it would constitute an “undue hardship.” However, lawmakers never defined an undue hardship, so it is left to the courts to determine just how destitute a borrower needs to be to qualify for relief.
The appeal seems to have prompted the First Circuit Court of Appeals to reconsider the definition of hardship. A judgment in favor of the debtor could have a significant impact on other courts, which have not looked at this issue in some time. This case could mark the first time a federal court weighs in on modifying the standards in a decade.
Federal student loan debt stands at $1.2 trillion, making it the largest source of consumer debt outside of mortgages. This figure is expected to double in the next 10 years, with the rising costs of higher education. Some 7.5 million student debtors are severely behind in paying the government back.
From 2001 through 2007, the debtor in this case took out several Parent PLUS student loans (federal debt parents can use to finance their kids’ education) to send his three children to college. After accruing interest, the total debt ballooned to $246,500. In 2002, he lost his job as president of a manufacturing company when it closed its doors to move overseas.
He has been unable to find work in the last 13 years, he said, because he is viewed as too old for executive positions and overqualified for lower-level jobs. He lives on the salary his wife makes as a teacher’s aide, less than $15,000 in annual income. Their retirement savings has been drained and their house just went into foreclosure. Even if he were able to find a job paying $50,000 per year until he turned 77, he calculated, the balance of his loans would still grow to $500,000.
Consumer advocates agree, most of debt that could be discharged in bankruptcy is not collectible because the bankrupt borrower cannot pay it back. The idea of bankruptcy is to give consumers relief from overwhelming debt and a fresh financial start. If a debtor is never going to be able to repay their debts, why are we not giving them relief?
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For borrowers who are struggling with student loan debt, relief options are available. Many student loan borrowers are unaware that they have rights and repayment options available to them, such as postponement of loan payments, reduction of payments or even a complete discharge of the debt. It is important you contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade & Garcia, P.A. has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade & Garcia website at www.miamibankruptcy.com.
