Bankruptcy Law

Michael Hedlund, a graduate of Willamette Law School was able to discharge a portion of his student loans in bankruptcy following a 10-year court battle. Hedlund borrowed approximately $85,000 to get his undergraduate and law degrees, then failed the bar exam three times. He ultimately got a job as a juvenile counselor. At the age of 33, married with a child, he declared bankruptcy.

This case, which ended with the 9th U.S. Circuit Court of Appeals discharging Hedlund’s student loans, has potentially large implications for borrowers. It’s pretty well known that student loans cannot be discharged through the normal bankruptcy process. Instead, Congress requires student loan borrowers to prove “undue hardship.”

In the absence of any further guidance from Congress on what constitutes undue hardship, most courts apply what is called the “Brunner standard.” This standard requires a borrower prove three things:

1.) The borrower and any dependants cannot maintain a minimal standard of living based on current income and expenses;

2.) Additional circumstances indicate this is likely to be the case for a significant portion of the borrower’s repayment period;

3.) The borrower made a good faith effort to repay the loans.

Important to other struggling borrowers is the fact that the 9th Circuit Court upheld the bankruptcy court’s relatively reasonable application of the facts in Hedlund’s case to the Brunner standard.

Specifically, the Court agreed there was considerable evidence the family’s expenses, including two cell phones and leasing a reliable car could be seen as reasonable and that the excess expenses- including cable and children’s haircuts- were considered marginal. The bankruptcy court also rejected arguments that Hedlund should find another part-time job, holding there was considerable evidence that Hedlund had maximized his income. The Court did note that his wife could be expected to work three days a week rather than one.

This verdict provides not only hope, but good precedent for future plaintiffs who want to have their student loan debts discharged in bankruptcy. Borrowers should also be aware of a study by Jason Iuliano which suggests that in 2007 alone, there were 69,000 borrowers who were good candidates for relief but fewer than 300 actually attempted to discharge their loans.

Both Hedlund’s experience and Iuliano’s study should encourage more borrowers in bankruptcy to assert their rights under the undue hardship standard.

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If you are in a financial crisis and are considering filing bankruptcy, 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.