Bankruptcy Law, Debt Relief, student loan debt, Student Loans

How to Discharge Student Loan Debt in Bankruptcy

When it comes to discharging debts in a bankruptcy case, student loan debt has traditionally been one of the most difficult debts to discharge. The fact that this debt can be so difficult to get rid of in a bankruptcy case has kept some consumers from filing for bankruptcy. The problem is it can be very difficult for a person who is in a financially tight situation to keep paying on this debt outside of bankruptcy.  Student loan debt is oftentimes the largest debt a consumer carries, outside of their mortgage.  If someone goes through bankruptcy only to continue being stuck with his or her student loan debt, that person may end up in the same financial situation, again.

Here is how to  discharge student loan debt in bankruptcy.

Undue Hardship

Student loan debt can be discharged if the borrower can demonstrate that he or she would suffer an undue hardship if forced to pay back his or her student loans. However, bankruptcy courts do not have one set standard to guide them in determining what exactly qualifies as an undue hardship. The U.S. Bankruptcy Code does not give a clear definition for what undue hardship is, which could be why so many inconsistencies exist among bankruptcy courts. Some courts will only use the undue hardship test to grant full discharge of the loans while others will allow for partial discharge. Others view the test as an extremely difficult standard to meet while others may be more lenient. At the end of the day, if the borrower has a very low income or took the student loan out to attend a for-profit trade school, he or she may have a better chance to get the obligation discharged, although other factors will be considered, as well.

Bankruptcy Law, Student Loans, Timothy Kingcade Posts

New Bankruptcy Rules Proposed for Student Loan Debtors

According to a recent report from the Consumer Financial Protection Bureau, it is estimated that there are around 44 million individuals with student loan debt. The report showed that around $1.4 trillion is owed by total student loan borrowers. Of this amount, around 11 percent of that debt is past 90 days overdue. These figures show one common theme: student loan debt affects many Americans and not in the good way.

Student loan debt becomes an even bigger problem for those borrowers who are not able to keep up on their payments. It has traditionally been impossible for a borrower to have his or her student loans discharged in bankruptcy, which meant that these individuals were continued to be burdened by immense debt even after bankruptcy was over. It seems counter-intuitive since the purpose of bankruptcy is to get a financial fresh start, which has led to recent proposals to change the way student loans are handled in bankruptcy.

A recent bill, the HIGHER ED Act, H.R. 5549, introduced in April 2018 by Oregon Democratic Congressman Peter DeFazio has proposed significant changes to how student loans are handled in bankruptcy. The legislation would broaden the legal definition of “undue hardship,” which is the standard used by bankruptcy courts to determine if a borrower is eligible for discharge of his or her student loan debt.

The “undue hardship” determination has never been truly defined, and bankruptcy courts have had to decide on what it means on a case-by-case basis, and this inconsistent application has led to inconsistent rulings across the board. Earlier in 2018, the U.S. Department of Education had issued a statement requesting public comments on whether the undue hardship definition needed to be modified. The Department had previously expressed concerns that the undue hardship test has kept borrowers from trying to see relief from their debts through bankruptcy.

In a recent study written by Jason Juliano at the University of Pennsylvania Law School, it was found that around 40 percent of borrowers who included their student loan debts in their initial bankruptcy filings ended up with some or all of their debt obligation discharged. That number does not seem too bad until it is compared with the 0.1 percent of filers who actually attempted to discharge their student loan debts. This number shows that people simply do not even feel it is worth trying to discharge their student loan debts.

When it comes to bankruptcy and student loan debt, there are some common misconceptions. One being, that student loans are never dischargeable in bankruptcy. In fact, there are ways to file for bankruptcy with student loan debt.

All of the federal courts of appeals, with the exception of the Boston 1st U.S. Circuit Court of Appeals and St. Louis 8th U.S. Circuit Court of Appeals have adopted what is commonly referred to as the Brunner test in defining undue hardship. The test goes through three factors when making this determination:

  1. If the borrower had to continue to pay back the loan, would he or she be able to maintain a minimal standard of living?
  2. Are the borrower’s financial difficulties expected to continue for the next several years, or are they temporary?
  3. Has the borrower made efforts to keep up with student loan payments before deciding to file for bankruptcy?

Under the Brunner Test, the borrower must be able to show that the debt has made it impossible for him or her to support themselves and their families and that the financial situation is not expected to change without the debt being discharged or lifted.

The Department of Education is taking the comments and data received this year and hopes to re-evaluate this criterion. The Department also hopes to change the weights given to each of the three factors and make the discharges more accessible to student loan borrowers who desperately need relief.

Click here to read more on this story.

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 www.miamibankruptcy.com.

 

 

 

Bankruptcy Law, Debt Relief, Student Loans, Timothy Kingcade Posts

Student Loan Borrowers Seeing Some Relief from Bankruptcy Judges

Student loan borrowers are beginning to see some relief in bankruptcy court when it comes to discharging student loan debt. At the start of 2018, the Department released a statement that it was reviewing student loan bankruptcy laws with respect to how difficult it has been for borrowers to receive a discharge of their student loan debt in bankruptcy. Following this statement, some bankruptcy court judges have lessened the standards borrowers are held to when deciding on whether the loan obligation should be discharged.

Since the statement was made by the Department and subsequent request for comments on the current policy, no updates have been given as to whether the Department would be making official policy changes. In the meantime, bankruptcy court judges seemed to have taken a cue from the Department and are now making rulings to make loan repayment terms easier on borrowers for the meantime.

A recent Wall Street Journal report found that judges were more becoming more lenient when dealing with individuals saddled with student loans. Current college graduates are now entering the workforce with well over six figures in student loan debt. Unless these graduates land a job making an income that is comparable to this debt, these individuals soon find themselves unable to make student loan payments. Bankruptcy is meant to provide individuals drowning in debt with a way out, but the current policy with respect to student loan debt has dictated that this obligation stays with the debtor even after a bankruptcy discharge of all other debts.

The study looked at 50 current and former bankruptcy court judges, reviewing bankruptcy cases where the filer had student loan debt. The study showed that a number of the judges were very sympathetic to the cause of the individuals in front of them who were not able to pay their current student loan debt obligations. In fact, many of them understood the struggle all too well with student loan debt since they may also carry debt from law school, or they may be influenced by the struggles they see with their law clerks finishing or graduating from law school. It is estimated that the average lawyer holds just under $120,000 in student loan debt.

These judges are required to follow the legal standard that a borrower must pass the “undue hardship test,” which has traditionally been a strict standard. It has also been a standard that has never been clearly defined by bankruptcy law and has been applied inconsistently from court to court.

Congress has never given a clear definition for what undue hardship consists of, but many courts have used the “Brunner” test to determine what this means.

The Brunner test requires that the borrower show that he or she has made a good faith effort in repaying the debt, that the financial circumstance is such that the person cannot have a reasonable standard of living if he or she has to repay the debt, and this financial situation is likely to continue in the future.

Even though the judges’ hands may be tied by the legal standard, they may seek other, more creative solutions to help the borrowers ease their burdens. They may not be able to completely cancel the debt in all situations, but they have tried to help alleviate some of that burden. In some cases, however, some of the more sympathetic judges have completely cancelled the borrower’s past due debt obligation.

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 www.miamibankruptcy.com.

Related Resources:

https://studentloans.net/bankruptcy-judges-taking-it-easy-on-some-student-loan-borrowers/

https://lendedu.com/news/some-judges-push-to-ease-bankruptcy-rules-for-student-loan-debt/

 

Bankruptcy Law, Debt Relief, Student Loans, Timothy Kingcade Posts

Dept. of Education’s Announcement Gives Hope to those struggling with Student Loan Debt

With student loan debt at nearly $1.5 trillion, 40 percent of borrowers will default on their student loans by 2023, according to a recent study by Brookings Institute.  The staggering numbers have caused the Department of Education to take action and announce that it will review and potentially alter policies that make it exceedingly difficult for student loan debt to be discharged in bankruptcy.

The problem is that ‘undue hardship’ was never defined and the case law has never led to a standardized definition. Courts often use the “Brunner Test,” which requires you must show that you cannot maintain a basic standard of living while paying the student loans and that this difficulty would last throughout the majority of the repayment period.  You also must prove that you made a good showing of trying to repay your student loan debt.

The Department of Education’s latest actions indicate that they will broaden the “undue hardship” current definition – which is good news for student loan borrowers.   This change could also help streamline the bankruptcy process and help borrowers struggling with massive student loan debt rebuild their lives.

Click here to read more on this story.

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 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 www.miamibankruptcy.com.

Bankruptcy Law, Student Loans, Timothy Kingcade Posts

Will Student Loans Be Discharged In Bankruptcy Under Trump Administration?

For years, the fact that student loan debt stayed with bankruptcy filers kept individuals sinking in personal debt from filing for bankruptcy. That may all change with a recent statement made by the current administration.

According to the Department of Education, the possibility of borrowers having their student loans discharged in bankruptcy is becoming more of a reality. In fact, the Department is opening comments with respect to individuals requesting an undue hardship discharge of their student loan debt in bankruptcy.

Student loan balances have sky-rocketed over the past few years to an all-time high of $1.4 trillion. The average balance held is now at $34,144, which has gone up 62 percent over the past ten years.

As of September 30, 2017, approximately 4.6 million student loan borrowers were in default on their loans.  The Department of Education now has the national student loan default rate at somewhere over 11 percent. To be in default, a borrower has to have missed making monthly payments for 270 days.

Of course, the fact that the Department is opening the comment period does not guarantee a policy change, but at the least, the Department is interested in hearing what borrowers have to say.

Currently if a borrower is facing issues with student loan debts, the first steps he or she is recommended to take is to postpone payments with either a deferment or forbearance. A deferment will let the borrower put the loan on hold for a period of up to three years, allowing them to catch up on other debts. However, the borrower does have to qualify for a deferment, and if he or she does not qualify, a deferment allows the borrower to at least temporarily suspend student loan payments for a period up to one year. This allows some temporary relief in terms of the large payments student loans often incur, but remember during this time the interest on the loan will continue to accrue and be added to your total balance.

If deferment and forbearance are not options, working with the lender on an income-based repayment plan can allow the borrower to pay a percentage based on his or her income, rather than a flat rate. However, even this option requires the borrower to be at a certain income level.

Student loan discharge is not currently a complete impossibility, but it is an uphill battle. Two legal tests are currently used by courts to determine if a borrower qualifies for student loan debt forgiveness in bankruptcy. Under the Brunner test, the borrower has to be at a certain poverty level such that he or she cannot maintain a minimal standard of living for himself or his or her dependents, the financial situation is likely to persist for a significant period of the repayment period and the borrower has made good faith efforts in repaying student loans. The Totality of the Circumstances test allows courts to look at all relevant factors in the case to determine if forcing the borrower to repay back his or her student loan would be an undue hardship. Both tests require the borrower present evidence and testify in bankruptcy court to get the student loan debt discharged.

Click here to read more on this story.

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 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 www.miamibankruptcy.com.

Credit, Student Loans, Timothy Kingcade Posts

How To File For Bankruptcy with Student Loan Debt

For consumers struggling with significant debt, filing for bankruptcy may be your best option to provide you with a fresh start. If your debts consist of federal student loans, it is not an easy process to get these discharged in bankruptcy; however, it is possible.

The first thing you must do is to decide whether you will file for Chapter 7 or Chapter 13 bankruptcy. In Chapter 7 bankruptcy, the goal is to get unsecured debt wiped out. This means, you have little disposable income available to pay off your debts. If you choose to file for Chapter 13 bankruptcy, your plan is to get your debts restructured in order to repay some of it. This also means you likely have some disposable income to repay part of your debt.

The most important part of your case when you have student loan debt is that you must prove “undue hardship” to the court. This means that you must prove that you cannot pay back your federal student loans. In order to prove undue hardship, you and your bankruptcy attorney must file a petition called an adversary proceeding, which is unique to bankruptcy involving student loan debt.

In most courts, The Brunner Test is used to evaluate hardship. Below are 3 factors of The Brunner test outlined by the U.S. Department of Education’s Federal Student Aid office:

  • The filer cannot maintain a basic standard of living if paying back federal student loans
  • The filer can prove the hardship will last for a large percentage of the repayment period
  • The filer honestly tried to repay the loans before filing

Click here to read more on this story.

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 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 www.miamibankruptcy.com.

Bankruptcy Law, Credit, Debt Relief, Student Loans, Timothy Kingcade Posts

Common Sense and Compassion enter the Student Loan Bankruptcy Arena

In the case, Nightingale v. North Carolina State Educational Assistance Authority, the debtor, Alice Nightingale, 67 years old, suffered from “intractable foot pain,” hypothyroidism, obstructive sleep apnea, and chronic fatigue, all of which had worsened over the course of her chapter 13 bankruptcy. The condition prevented her from engaging in employment and from taking part in many day-to-day activities.

She was granted full disability from her teaching job by the County School Board. In a hearing in October, 2015, the court found Ms. Nightingale had established the first and third prongs of the Brunner test with evidence that she had attempted to repay the student loan, that she was “elderly” and unlikely to find future employment and that she suffered from significant medical problems. Although Ms. Nightingale’s testimony concerning her medical disabilities was credible,  the second prong of the Brunner test still needed to be satisfied.

Over the lender’s objection, the court held a second hearing in which Ms. Nightingale presented medical documents to corroborate her testimony, including letters to Ms. Nightingale’s attorney from two of her doctors, a medical report for disability eligibility, and a physician-provided list of Ms. Nightingale’s current medications.

The subsequent hearing specifically addressed the second prong of the Brunner test: whether there existed “additional, exceptional circumstances, strongly suggestive of continuing inability to repay [the debt] over an extended period of time.”

While the court agreed with the lender that Ms. Nightingale could have presented evidence of recent tests and evaluations, it found that it was not necessary that she “provide every possibly available piece of evidence that could further corroborate the unrebutted evidence in this case.”

The court concluded: “Taking into consideration the Plaintiff’s age, current living situation, inability to walk or stand for long periods of time, chronic fatigue, lack of stamina, lack of strength, diminished cognitive ability, and the likelihood that these conditions will all last for a significant period of her possible repayment period given her age and the duration of her illnesses, the Plaintiff has demonstrated that exceptional circumstances exist in this case and has met the second prong of the Brunner test.”

Click here to read more on this story.

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.

Related Resources:

http://www.ncbrc.org/wp-content/uploads/Nightingale-Bankr-MD-NC-opinion-April-2016.pdf

Bankruptcy Law, Credit, Debt Relief, Student Loans, Timothy Kingcade Posts

The Battle for Student Loan Debt Discharge

Section 523(a)(8) of the Bankruptcy Code outlines a debtor’s ability to discharge student loan obligations. Under this section, student loans are presumably nondischargeable. However, there is a narrow exception if a debtor is able to show that repayment of their student loans will cause an “undue hardship.”

Two courts recently entered decisions on this issue within the same week, using the same standard for “undue hardship.”  The District Court for the Middle District of Alabama and the Bankruptcy Court for the District of Idaho issued largely opposite decisions based on similar facts.

In ECMC v. Alexandra Elizabeth Acosta-Coniff, the bankruptcy court initially held that the debtor was able to meet the undue hardship threshold and discharge her $112,000 of student loans. However, on appeal, the district court reversed the decision.

The case involved a 44-year-old single mother of two who took out more than $100,000 in student loans pursuing four degrees, including two master’s degrees and a PhD in special education. As a full-time public school teacher, the debtor argued that the student loans were an undue hardship, as she was underpaid with no prospects to increase her earnings in the near future.

The court used the test for undue hardship, where the debtor must establish:

(1) That he or she cannot maintain, based on current income and expenses, a “minimal standard of living for herself and her dependents if forced to repay the loans;

(2) 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

(3) that the debtor has made good faith efforts to repay the loans.”

The district court denied the debtor’s discharge of the loans based on the second factor, holding that the debtor did not satisfy the burden to show that there are additional circumstances preventing her from fulfilling her payment obligations. The court reasoned that the debtor chose to earn four degrees with a general understanding of the cost versus benefit analysis and her multiple degrees enabled her to seek employment on a larger pay scale.

It reasoned that the debtor’s future ability to earn extra income was a realistic possibility, negating the need to discharge her student loans.

In Elizabeth M. McDowell v. Education Credit Management Corporation, and U.S. Department of Education, the court reached the opposite decision under the Brunner analysis.

There are essentially three criteria a debtor must meet under the Brunner analysis.

  • Continuing to pay the loan must cause the borrower to be unable to sustain a minimum standard of living;
  • The borrower’s financial situation must be unlikely to change in the future;
  • The borrower must have made a good-faith effort to pay his or her loans.

The debtor, a 43-year-old single mother of two, owed $93,000 in student loan debt for both her undergraduate and graduate degrees. The debtor was steadily employed as a social worker, but had recently taken a $6,000 trip to South America to attend training for a career switch to photography. The debtor also financed the purchase of a motorcycle for her ex-husband.

At trial on the issue of undue hardship, her doctor testified that her health was deteriorating, and it was likely that she would be unable to work in the near future. Due to this fact, the court found her health condition to be an additional circumstance that would persist, or worsen, in the near future, satisfying the second requirement of the Brunner test.

The court recognized that the debtor made certain financial errors in the past, such as her trip to South America and the purchase of a motorcycle. However, the court held that she otherwise lived modestly while working full time. Ultimately, the court held that the debtor could discharge most of her loans, except for $10,000 which the court determined to be frivolous spending.

Click here to read more on this story.

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.

Related Resources:

http://www.lexology.com/library/detail.aspx?g=8b4f44fe-0baa-4e50-b4f8-d77adda86096

http://www.usnews.com/education/blogs/student-loan-ranger/2014/08/13/debunking-the-student-loan-bankruptcy-myth