A federal appeals court this week has urged a bankruptcy judge to consider a settlement that would allow a Duxbury father to discharge more than $246,000 of student loan debt he borrowed to send his three children to college.
The case has generated national attention amid the growing concern about student loan debt and what it means for our nation’s economy. For the past four years, The Educational Credit Management Corp., a company hired by the US Department of Education, has vigorously fought the efforts to have the loans discharged in bankruptcy.
Four months after the US First Court of Appeals heard oral arguments in the case and urged the parties to try to settle, the company signed an agreement acknowledging that the debtor should be forgiven because he has proven that repaying the debt would pose an undue hardship. The following day, the appeals court sent the proposed settlement to the bankruptcy court. The final decision lies in the hands of the bankruptcy judge.
Most courts rely on one of two tests when defining hardship. These include: The Brunner test, which requires a borrower to show that he has made a good faith effort to repay the debt, cannot maintain a minimal standard of living for himself and his dependents if forced to repay the loan, and is facing additional circumstances that make it unlikely he will be able to pay in the future.
The second test, called the “totality of the circumstances” test, considers a debtor’s past, present, and future financial resources; living expenses; and any other facts and relevant circumstances surrounding each particular bankruptcy case. When assessing hardship, most courts require borrowers to show extraordinary circumstances, such as a serious illness, psychiatric problem, or permanent disability.
In this case, the debtor Robert Murphy lost his $165,000-a-year position as president of a Canton manufacturing company when it moved overseas in 2002, and had been unable to find another job. He depleted his retirement savings to pay bills, which included more than $61,000 that was applied to his student loan debt, which left him and his wife primarily dependent on her $13,200 teacher’s aide annual salary.
Murphy sought to discharge the $246,000 he still owed on a dozen Parent Plus loans he took out between 2001 and 2007 to send two of his children to Loyola University Maryland and a third to the University of Connecticut and Bridgewater State.
If he had it to do over again, Murphy says he would have never borrowed the money, even though he was unemployed when the government issued him the majority of the loans. Like many in his situation, he believed he would be able to find another high-paying job and repay them. He launched an exhaustive search and attributed his inability to find work to his age, a failing economy and the decrease in manufacturing jobs.
Murphy’s case was being watched by consumer advocates across the country, who hoped the appeals court would take a new look at what defines undue hardship. The settlement has the possibility to preempt a decision that could establish a precedent.
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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 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