student loan debt, Student Loans

Bankruptcy Court Discharges $200,000 in Private Student Loan Debt for Colorado Couple

A major victory was scored for student loan borrowers after a U.S. Court of Appeals for the Tenth Circuit issued a ruling stating that a Colorado couple’s private student loan debt could be discharged in their personal bankruptcy case. The ruling allowed $200,000 of private student loan debt to be wiped out, breaking the long-standing stigma that student loan debt, particularly private student loan debt, is near impossible to discharge in a bankruptcy case.

The Colorado couple had taken out $200,000 in private student loans from Navient, one of the nation’s largest student loan issuers. The ruling comes after a similar bankruptcy case, where the borrower also had their student loan debt discharged. In that case, the loan servicer appealed the ruling.

The prior case debated the merits of the undue hardship test that is traditionally used in determining whether student loan debt should be discharged in a bankruptcy case. This standard has been hard to meet, and courts have not been consistent in how they apply the standard.

While the previous case involved a Chapter 7 bankruptcy case, this most recent ruling comes from a Chapter 13 bankruptcy, also known as a reorganization bankruptcy. The Colorado couple involved in this case had taken out multiple student loans through Sallie Mae under the “Tuition Answer Loan” program to obtain a degree in 2008. The wife had taken out loans to pay for her bachelor’s and master’s degrees, graduating with a total of $120,000 in private loans. These loans were later serviced by Navient.

When her repayment period started, her monthly payment was $1,000, a figure she realistically could not handle. However, when she contacted Navient regarding this issue, she claims they were not willing to adjust her payment plan and then threatened to garnish her wages for failure to pay.

The couple tried to work hard with their loan providers to adjust the repayment plans so that they could continue paying on their debts and remain in their home. In the court ruling, it was noted that an amended repayment plan was submitted by the couple and that they had made a good faith effort to keep up with payments. By the time they ended up filing for bankruptcy, the couple had paid approximately $27,000 towards student loan principal.

The couple had successfully completed the repayment period of their Chapter 13 bankruptcy plan, but they still had the student loan debt at the end of the case. Navient was not making this process easy for them by any means. In fact, Navient continued to add more interest to the total amount owed during the bankruptcy. According to court records, an additional $44,408.17 in interest was added by Navient during the course of the case. By the time they finished their bankruptcy case, they actually ended up owing more than when they started the case. At the end of the case, the monthly payment had skyrocketed to $2,000 a month, which was more than their mortgage payment. The couple continued to pay towards the loans and paid an additional $37,460 on the loans owed.

Eventually, they could no longer keep up with payments, which is why in 2017, the couple requested the bankruptcy court reopen their case. They also filed a formal complaint against Navient. The loan servicer fought back, claiming that the debt was not dischargeable.

In the court ruling, the judge wrote that an educational loan did not constitute an obligation to repay funds no matter what. The court then affirmed the bankruptcy court’s order that denied Navient’s motion to dismiss and remanded the case for further proceedings.

This ruling represents what many advocates call a “loosening of the student loan discharge law.” It is estimated that over 2.5 million people with student loan debt have filed for bankruptcy in the last decade alone. In only 2019, approximately 221,000 student loan borrowers filed for bankruptcy, hoping to get similar relief. It is anticipated that this ruling will open the door to allowing borrowers in similar situations to have a sense of relief from their student loan debt.

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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. There are ways to file for bankruptcy with student loan debt.  It is important you contact an experienced Miami bankruptcy attorney who can advise you of all 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 McMaken 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 McMaken website at

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