Student Loan Debt and Bankruptcy

Student loan debt is an ever increasing financial problem for families these days.  Often, the burden of student loan debt will keep individuals from purchasing a new home, a new vehicle or even cover their basic living expenses.   It’s a hot topic that has surfaced in the last few years but law makers have been slow to provide statutory relief to borrowers.  What is a debtor who owes an insurmountable amount of debt without any chance of repayment to do with their student loan debt?

One option may be filing bankruptcy.  Can the debt be discharged in bankruptcy? The general answer is that there is a provision that allows for discharge of student loan debt in the bankruptcy code if repayment of the debt will “impose an undue hardship on you and your dependents.”  However, the reality is that it is extremely difficult to meet this standard in order to obtain a discharge of student loans in bankruptcy but it has been done before if you meet the court’s criteria.   The bankruptcy court begins by evaluating a number of factors, often referred to as the “Brunner Test”, which include the following:  1) whether a debtor can maintain a minimal standard of living for the debtor and the debtor’s dependents if required to pay the student loans; 2) Whether the circumstances surrounding the debtor’s inability to repay the loans will exist for a significant time period; and 3) whether the debtor has made a good faith effort to repay the loans.  Filing bankruptcy may also stop any pending wage garnishment for student loans for a period of time if you need to stop the garnishment.

If you decide to file the bankruptcy for this purpose, then you must bring a lawsuit proceeding called an “adversary proceeding” for the court to consider your circumstances.  Some examples of circumstances that would work in a debtor’s favor may be that the debtor has been working for a period of years and still unable to reach maximum earning capacity.  For example, a 50 year old debtor earning $8.50 an hour who was unable to find any other job was found to have reached maximum earning potential and had minimal living expenses was granted a discharge.  Courts have also discharged debt where the borrower may not have benefited from the education or went to a fraudulent school.  These are just a few examples of cases that debtors were able to get their student loan discharged.  There are a number of factors to consider and each case will be decided on its own merits.

Although it may be a difficult process, if you are experiencing extreme hardship in repaying your student loans, contact our offices today to set up a free consultation and evaluation of your situation.


Disability and Student Loans

What happens to your student loan debt if you become unable to work? It depends on both the type of loan you have and what kind of disability benefit you receive.

SSI benefits, which are paid as part of a need based disability program, cannot be garnished to repay student loan debt.

But SSDI benefits can be. In 2013, the number of people under the age of 65, who were having their SSDI Benefits garnished to repay student loans, grew to an all time high of 119,000 individuals.

If you are found, “Totally and Permanently Disabled” certain types of federal student loans can be forgiven. This is not the same as SSA’s definition of disability, but the Department of Education will accept the notice of SSA award as proof if the notice of award indicates that the claim will be reviewed every 5-7 years. The 5-7 year review is what SSA assigns to claims that they deem to be permanent or where no medical improvement is expected to occur.

If your notice of award doesn’t have the review schedule, you can contact SSA and request a printout verifying the continuing disability review schedule.

Please visit our website: www.socialsecurityjustice.com or contact one of our Bailey & Galyen offices for additional information.