Why Don’t More Student Loan Borrowers File Bankruptcy?

By on November 14, 2017

Matt Taibbi for Rolling Stone about the student loan crisis. Titled “The Great College Loan Swindle” Taibbi’s piece told the story of two distressed student-loan borrowers: Scott Nailor and Veronica Martish.

Nailor borrowed $35,000 to get a college degree in education. Unfortunately, his first teaching job only paid $18,000; and he fell behind on his payments. Ultimately, he filed for bankruptcy and defaulted on his student loans. Apparently, he did not try to expunge his student-loans in bankruptcy, because he still paying on them. Due to penalties and accrued interest, Nailor estimates he now owes $100,000.

Veronica Martish, a 68-year-old military veteran, borrowed $8,000 to take courses at Quinebaug Valley Community College; and her investment in higher education did not pay off any better than Nailor’s. She fell behind on her student-loan payments and her debt swelled to $27,000 due to fees and interest. Martish eventually entered a loan “rehabilitation” program, but her payments hardly put a dent in the loan principle. She told Taibbi that she’s paid $63,000 on her student loans and is nowhere near paying them off.

Taibbi’s article about the student-loan crisis is excellent, and he choose two people–Nailor and Martish–who could be the poster children for this catastrophe. Unfortunately, Taibbi’s article did not mention the one avenue of relief that is probably open to both Martish and Nailor–bankruptcy.

It is true that student loans are very hard to discharge in bankruptcy, but it is not impossible. Debtors must show that their student loans constitute an “undue hardship,” and the courts have traditionally defined undue hardship quite harshly. Most federal courts have adopted the Brunner test for determining whether undue hardship exists.

The Brunner test ask three questions:

1)Can the debtor maintain a minimal standard of living for himself or herself and dependents and pay off the student loans?

READ  Mostly Democrats Sign On to Make Student Loans Dischargeable in Bankruptcy

2) Are the debtor’s financial circumstances likely to change in the reasonably foreseeable future?

3) Did the debtor handle his or her student loans in good faith?

In the past, the bankruptcy courts applied the Brunner test quite harshly, and many worthy debtors were denied relief. In fact, a myth has developed that it is impossible for debtors to discharge their student loans in bankruptcy.

In recent years, however, more and more student debtors have gone into the bankruptcy courts and gotten their loans discharged in bankruptcy or at least partially discharged. In fact, several debtors have gotten bankruptcy relief from their student loans even though their circumstances were less dire than either Nailor’s or Martish’s.

Indeed, I feel confident that Nailor and Martish could wipe out their student loans in bankruptcy if only they had competent legal counsel to guide them through the process.

After all, what bankruptcy judge would deny relief to Veronica Martish, a 68-year-old military veteran who borrowed $8,000 and has paid more than $60,000 toward paying off the debt?

What judge would deny relief to Scott Nailor who borrowed $35,000, now owes $100,000 and is so depressed by his debt that he contemplated suicide.

Nailor would be interested to know that several bankruptcy courts have considered the psychological stress of long-term indebtedness when applying the undue hardship rule. And Martish would be interested in knowing that the Ninth Circuit’s Bankruptcy Appellate Panel discharged the debt of Janet Roth, a woman about the same age as Martish and who probably made fewer payments on her loans than Martish did.

I feel sure most bankruptcy judges would be quite sympathetic to both Martish and Nailor. Someone needs to tell these distressed debtors that they should file bankruptcy and attempt to get their student loans discharged in bankruptcy through an adversary proceeding. –

Last step, fill out the information below or call us for Priority Assistance.

What problems are you having with your report?

Your first name is required. Your first name is required to be at least 2 characters. Your first name cannot be longer than 50 characters.
Your last name is required. Your last name is required to be at least 2 characters. Your last name cannot be longer than 50 characters.
Your email is required.
Your phone is required. Your 10 digit phone number is required.
Your state is required.
Your age is required. Your age must be greater than 18. Your age must be less than 100.

By clicking on the "Contact Me" button above, you consent, acknowledge, and agree to the following: Our Terms of Use and Privacy Policy and to receive electronic communications. We take your privacy seriously. That you are providing express "written" consent for Debt.com or appropriate service provider(s) to call you (including through automated means; e.g. autodialing, text and pre-recorded messaging) via telephone, mobile device (including SMS and MMS - charges may apply), even if your telephone number is currently listed on any internal, corporate, state or federal Do-Not-Call list. Consent is not required as a condition to utilize Debt.com services and you are under no obligation to purchase anything.

By clicking on the “Contact me” button above, you consent, acknowledge, and agree to the following: (1)That you are providing express “written” consent for Lexington Law Firm, Debt.com or appropriate service provider(s) to call you (including through automated means; e.g. autodialing, text and pre-recorded messaging) via telephone, mobile device (including SMS and MMS – charges may apply), or dialed manually, at my residential or cellular number, even if your telephone number is currently listed on any internal, corporate, state or federal Do-Not-Call list; and (2)Lexington Law’s and and Debt.com’s Terms of Use and Privacy Policy. Consent is not required as a condition to utilize Lexington Law or Debt.com services and you are under no obligation to purchase anything.

About Richard Fossey

Richard Fossey is a professor at the University of Louisiana in Lafayette, Louisiana. He received his law degree from the University of Texas and his doctorate from Harvard Graduate School of Education. He is editor of Catholic Southwest, A Journal of History and Culture.

2 Comments

  1. Aurora

    November 15, 2017 at 11:17 am

    I am curious how these debtors paid for their bankruptcy. I have had a consultation with a student loan/bankruptcy lawyer here in NJ ($200) and he says it would cost roughly $10,000 for, not a hardship bankruptcy, but only a discharge of the tax liability at the end of 25 years. (Tax on what would likely be $150,000 in 25 years, when loans would be forgiven). That’s all. Meanwhile, I suppose I could continue paying my IDR forever to Great Lakes, the loan servicer, and never have the loans forgiven, and thereby not get forgiveness OR the tax penalty.

    • Steve Rhode

      November 15, 2017 at 2:55 pm

      It can be expensive for an adversary proceeding but some attorneys are doing it for less or even free to get the experience.

Share a Comment / Leave a Reply

profvest.com

続きを読みます rikon-ya.com

http://rezeptfrei-viagra.com
%d bloggers like this: