finances | Hearthstone Legal Group

STUDENT LOANS: Massive Relief Granted in the Bankruptcy Court

by Herbert Wiggins | Oct 20, 2022 | bankruptcy, student loans

The conventional wisdom is that “student loans cannot be discharged in bankruptcy.”
But the “conventional wisdom” is WRONG.
There is a high evidentiary bar for a debtor to discharge (cancel) her or his student loans, but discharge is possible.
In a recent case, the bankruptcy court discharged the loan of a Cambodian immigrant who, as a medical student, had amassed $440,000 in loans for his medical education. In re Koeut, 622 B.R. 72 (2020) [unpublished].
The test for relieving student debt is laid out in Brunner v. New York State Higher Education Servs. Corp., 831 F.2d 395 (2d Cir.1987) The Koeut court applied the 3-part Bruner test to relieve the medical student from the debt:
(1) The debtor 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) Additional circumstances exist indicating that this extreme situation is likely to persist for a significant portion of the repayment period of the student loan; and
(3) The debtor has made good faith efforts to repay the loans.
The court applied these factors to the $440,000 that Mr. Koeut declared in the Bankruptcy Court. The Bankruptcy Court eventually discharged about $432,000.
The Koeut court reasoned:
“[Mr.] Koeut has satisfied the tripartite analysis of the Brunner test sufficiently to support a partial discharge of his student loans. Koeut’s current income and expenses do not support a minimal standard of living, even without making loan payments. Koeut’s inability to repay his full loan balance will persist over his remaining expected working life to an extent that he can only make partial payments without [622 B.R. 85] enduring undue hardship. As the DOE admits, Koeut deserves a break. A partial discharge of $432,173.99 of Koeut’s student loans will be ordered, leaving a balance of $8,291.67 with interest to accrue at .11%. Koeut will be required to make payments of $41.87 per month to the DOE from December 2031 to December 2048.” [emphasis added]
Therefore, a debtor who seeks discharge of a student loan in bankruptcy must make a very thorough, detailed showing. And the debtor (and the lender) have the right of appeal, no matter how the Bankruptcy Court decides.
A difficult road, yes; but not an impossible one.
WARNING: THIS POST DOES NOT CONSTITUTE LEGAL ADVICE, AND READING IT DOES NOT CREATE AN ATTORNEY-CLIENT RELATIONSHIP. PLEASE CONSULT WITH AN ATTORNEY!!
#bankruptcy #studentloans #education #finances #lending #banking #fairlending

BANKRUPTCY: Student Loans Can be Discharged

by Herb Wiggins | Jan 20, 2021 | bankruptcy, student loans

The popular wisdom is that student loans are not dischargeable in bankruptcy. One will often hear a potential client say, “I know I can’t discharge a student loan.”

This is not true. Although the bar is high, student loans can be discharged in bankruptcy.

The debtor must initiate a trial in the bankruptcy court, against the lender. (The case is heard by the bankruptcy judge; there is no jury in bankruptcy court).

Then, the debtor must make a very thorough, detailed evidentiary showing:

“In Polleys [(Educational Credit Mgmt. Corp. v. Polleys, 356 F.3d 1302 (10th Cir.2004)], we held that under the Brunner test [(Brunner v. New York State Higher Education Servs. Corp., 831 F.2d 395 (2d Cir.1987)] in order to establish an undue hardship a debtor must prove:

“(1) that the debtor 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.

“Under the Brunner analysis, if the court finds against the debtor on any of the three parts, the inquiry ends and the student loan is not dischargeable. Id. at 1307 (internal citation omitted).”

In re Aldrete, 412 F.3d 1200 (10th Cir., 2005), cited in In re Nys, 446 F.3d 938 (9th Cir., 2006).

Therefore, a debtor who seeks discharge of a student loan in bankruptcy must make a very thorough, detailed showing. And the debtor (and the lender) have the right of appeal, no matter how the Bankruptcy Court decides.

A difficult road, yes; but not an impossible one.

WARNING: THIS POST DOES NOT CONSTITUTE LEGAL ADVICE, AND READING IT DOES NOT CREATE AN ATTORNEY-CLIENT RELATIONSHIP. PLEASE CONSULT WITH AN ATTORNEY!!