With an overwhelming vote of 392 to 31, the U.S. House of Representatives approved a Senate plan that gives future student loan borrowers a lower interest rate on their federal student loans. In essence, student loan interest rates are now tied in with the financial markets and, once set, will be locked in for the lifetime of the loan. But millions of former students who carry an onerous debt due to student loans are still left wondering, “Where is my relief?” Relief may be spelled BANKRUPTCY.
Most people believe student loans can never be discharged in a bankruptcy. The reality is, however, that student loans are dischargeable. The process is just not easy.
It requires a student loan borrower to file an adversary proceeding while his or her bankruptcy is proceeding. In the adversary proceeding, the student loan borrower has to prove that repaying his or her student loan debt would be an “undue hardship.” The test for “undue hardship” has three factors which all must be proven:
- That the current income and expenses of the student loan borrower and any dependents cannot pay the student loan payment and maintain a minimal standard of living;
- That #1 is likely to continue for a large portion of the student loan borrower’s repayment period; and
- That the student loan borrower has made a good faith effort to repay the student loans.
In a recent case, the 9th Circuit Court rejected the bankruptcy court’s arguments that a borrower’s, Hedlund’s, student loan debt was not at least partially dischargeable in bankruptcy. According to the 9th Circuit Court, it was not reasonable that the borrower find another part-time job or his wife increase her work hours just so they could repay his student loans. And though some of the couple’s expenses could be seen as marginally reasonable, i.e. the cable and children’s haircuts, the Court held that Hedlund had maximized his income. The Court also held that Hedlund rejecting repayment options offered by his loan servicer that would have entailed unaffordable monthly payments for a much longer repayment period did not show Hedlund acted in bad faith.
Though the Hedlund case took 10 years to resolve, the fact that his attorneys did get a partial discharge and were able to negotiate a settlement of part of his student loan debt after the adversary proceeding was initiated, has given other student loan borrowers hope. “However,” stresses Nathan DeLadurantey, a founding member of the Milwaukee Law Offices of DeLadurantey Law Office, LLC, “hardship discharges are still basically impossible to get, so an Income-Based Repayment Plan (IBR) may be a more cost effective solution.”
If you are interested in settling or resolving your student loan debt through bankruptcy or an IBE, contact The “Milwaukee Bankruptcy Attorneys,” DeLadurantey Law Office, LLC. DeLadurantey Law Office, LLC focuses on Chapter 7 and 13 bankruptcy, debtor’s rights, debt negotiations, debt relief, mortgage loan modifications, and foreclosure defense. A “defender of the little guy,” DeLadurantey Law Office, LLC serves the following location - Bayside, Brookfield, Cudahy, Franklin, Glendale, Greendale, Greenfield, Muskego, New Berlin, Oak Creek, Oconomowoc, Pewaukee, River Hills, South Milwaukee, St. Francis, Waukesha, Wauwatosa, West Alis, Whitefish Bay, and adjacent areas.