Is it worth it to try to discharge student loan debt?
When you are facing financial difficulties, you may be one of the hundreds of thousands of people whose troubles also include student loan debt. We often hear the same stigma surrounding student loan debt: it’s impossible to get rid of. And while the process of discharging student loan debt is tedious and has a lower success rate than other kinds of debt, that doesn’t mean you shouldn’t consider it. There are those who are able to get rid of this debt and better their financial situations.
When clients come to our offices to learn more about filing for bankruptcy, some of them have thousands of dollars in student loan debt. And they are not alone. In 2011, the Department of Education reported that more than 320,000 borrowers out of the 3.6 million who entered repayment in 2009 defaulted on their loans. And the number of families and students taking on student loans is increasing every year to offset rising tuition costs.
For those who want to try and get rid of this debt during bankruptcy, the road is much longer and harder than with other forms of debt. Although student loan debt is an unsecured debt, certain parts of the bankruptcy code require the debtor to prove that repaying it will cause “undue hardship” and that there is a “certainty of hopelessness” that will keep the debtor’s situation from improving during the repayment period. This language may sound uncertain, even unattainable. And that is the problem that judges have when faced with these types of cases. How do you prove a future of hopelessness? How can you decide a case based on speculation and so-called requirements that have a large grey area? Many cases have been denied because the judge did not feel “undue hardship” was proven. Others delay making a final decision and declare a “window of opportunity,” often for several years, to see if the debtor recovers from his financial situation and finds meaningful employment. All these difficulties, paired with the prospect of finding a lawyer who will even take on a student loan debt case, turn many people away.
But along with all the stories of people who bring undue hardship cases and fail are stories of those who succeed. Rafael Pardo (Emory Shool of Law, professor) and Michelle Lacey (Tulane University, math professor) inspected 115 filings in Western Washington, and found that 57% of debtors who attempted to prove “undue hardship” got rid of some or all of their student loan debt. Another case involves Jason Iuliano (Princeton University, Ph.D candidate), who looked at 207 proceedings involving student loans in the U.S. and concluded that 39% succeeded in discharging some or all of their debt. Those are not bad odds. And while these studies involve small numbers of cases, they still speak to the fact that making a case for undue hardship to discharge student loan debt is not an impossible feat.
So don’t write off your student loans completely if you are considering bankruptcy. Bankruptcy code makes lowering or eliminating this debt harder, but it does not make it futile. If you are struggling with student loan debt Call the Law Offices of Bruce Feinstein, Esq. now for a Free Consultation!
[Source: NY Times]
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