As the saying goes, the only things certain in life are death and taxes. But whoever originated that adage must have never tried to have a student loan debt discharged in bankruptcy. Up until recently, it was fairly certain that it couldn’t happen. But that may be changing as the student loan debt rises and baby boomers owe thousands even twenty or more years after college graduation. As the climate has become more sympathetic to borrowers, some bankruptcy courts are at least giving these debts a second look.
One case has made it all the way to a federal court of appeals, just one step below the United States Supreme Court. The case involves a 65-year-old man who took out student loans for his three children between 2001 and 2007. In 2002, the man lost his executive level job when his company moved its operation overseas. According to him, he hasn’t been able to find other work due to his age and being overqualified for lower-level positions, he has exhausted his retirement funds, and his house is in foreclosure. In the meantime, the interest on the loans has increased the debt to almost $250,000.
The criterion for erasing a student loan debt is whether the debt will cause “undue hardship” to the debtor if it remains. Unfortunately, in adopting that standard, the legislature never defined what constitutes undue hardship, so it has been left up to the courts to interpret on a case-by-case basis. This has led to inconsistencies and a lack of precedent to know whether a debtor will qualify.
On the flip side on the debt relief efforts, those against discharging student loan debt say that doing so could unleash a flood of debtors trying to erase it, leaving the Department of Education and its loan servicer in dire straits if they are unable to collect on the $1.2 trillion currently owed. That amount is the largest consumer debt behind mortgages and is expected to double in the next decade.
Regardless of the outcome in this case, the possibility of discharging student loan debt will still be determined on an individual basis. If you have significant student loan debt that is causing you financial difficulties, a bankruptcy attorney in New Jersey can help you determine whether your circumstances could warrant discharge.
Source: Bloomberg Business, “This Court Case Could Unshackle Americans From Student Debt,” Natalie Kitroeff, Oct. 8, 2015
