As we go along with this Blog we will discuss cases about one of the most important financial issues of our day – student loans. We know from this post that they are difficult to discharge in Bankruptcy, although there is a reason that we should probably try more than we do to get them discharged. Most cases from Bankruptcy Court conclude that the educational loans are not discharged because the debtor has failed to prove”undue hardship” and a “certainty of hopelessness.” Here is a case from Georgia in which the Judge holds that the borrower did meet the undue hardship standard, and the loans were discharged.
In the case, the borrower is 40 years old, has 2 minor children, and graduated from college in 1999 with a sociology degree. In 2000, she started a job at $33,000 per year, and worked at the job for 10 years. She was unemployed for a year, then in June 2011 started a job at $8.50/hour. In March 2013, she was working for $10.50/hour. As of the date of her Bankruptcy case, her net income (including food stamps) was about $1,950.00 per month and she meets her basic expenses with help from family. She has searched for higher paying jobs but has been unable to find one. Her student loans totaled $82,260.00.
The Court applied the three-pronged Brunner Test to the situation. First, the borrower could not maintain a basic standard of living on her current income, much less if she were required to make student loan payments. Second her circumstances were likely to persist as she has sought higher paying jobs but has been unable to find one. Her options are limited because she is a single mother caring for two children. Finally, she has made a good faith effort to repay when she was able and sought forbearance when she was not able. Although the Department of Education argued that she had not participated in an Income Contingent Repayment Plan, the Court found there is no requirement to participate in that plan to establish good faith. Having met all the requirements, the borrower received a discharge of the student loans in her Chapter 7 case.
If you find yourself in this situation, and can’t make your minimum student loan payments and pay your utilities and groceries, it is worth the time to see a good Bankruptcy lawyer in your area. You may or may not get a discharge of student loans as the borrower did in this case, but getting relief from other debts may help you make ends meet. If you are in Georgia, contact us, otherwise find a good lawyer in your area.
For those interested in the case, it is Al Riyami v. U.S. Dept. of Education, Adv. No. 12-08021 (M.D. Ga. January 6, 2014).