Bankruptcy and Student Loans – Why Can’t They Be Wiped Out?
I often meet with clients who have a mountain of student loan debt and would love to wipe it out in bankruptcy.
“Please tell me that there is some way that we can get rid of this mountain of student loan debt!” some will say.
Unfortunately, getting rid of student loan debt in bankruptcy is almost impossible. Don’t blame your bankruptcy attorney or your bankruptcy judge for this ridiculous state of affairs. Instead, put the blame where it properly belongs……..the United States Congress.
In the early 90s, you could get rid of student loans in bankruptcy just like any other type of debt. Then, a few doctors made headlines when they used student loans to get through medical school and filed bankruptcy as soon as they graduated. In response, the brilliant United States Congress passed a law making student loans nondischargeable in bankruptcy.
What about the Hardship Discharge of Student Loans?
If you can breathe and have a pulse, you most likely will never be able to discharge your student loans in bankruptcy in the 11th Circuit (Georgia, Florida and Alabama). The 11th Circuit follows the three prong Brunner test which states:
- The debtor must show that they cannot maintain a “minimal” standard of living if they are forced to repay the student loan;
- The debtor must show that additional circumstances exist indicating that their current state of affairs will continue for a significant portion of the repayment period of the student loans; and
- The debtor must show that they have made good faith efforts to repay the student loans.
In Kidd v. Student Loan Xpress Inc. and Xpress Loan Servicing, the debtor tried to discharge a student loan for a helicopter training school that closed before she graduated. Can you imagine how frustrating that must be to borrow a large sum of money to attend a school that shuts down before you graduate?
The problem for the debtor in Kidd was that showing that she had no benefit from the student loan did not automatically enable her eliminate it in bankruptcy. Its the type of debt that matters. Since the Court determined that it was in fact a student loan, it was not dischargeable unless the debtor could pass the Bruner test.
In some situations, consumers are able to improve their financial situation by eliminating every other type of debt they have so that they can focus all of their attention on paying off student loans. If you would like to sit down with me so that we can review your entire economic situation, call me at 706-295-0030.