Consumer Bankruptcy
Student
Loans
Student loans, generally, are
not dischargeable under any chapter of the
Bankruptcy Code unless the borrower can show "substantial
hardship."
A
Bankruptcy can, however, eliminate other debts that are competing
for your dollars and provide a measure of peace during a Chapter 13
plan. Further, in a Chapter 13, some courts permit the debtor to
separately classify a student
loan so that a greater percentage of
disposable income goes to the student
loan than non-secured debt.
Hardship
Discharge:
A
student
loan can be discharged or modified in a hardship proceeding. This
is an adversary proceeding and requires the filing of a Complaint to
Determine Discharge ability. A discharge will be granted if proved that
repayment of the loan will create a
substantial hardship on the debtor/borrower and his or her family.
The hardship standard is
generally interpreted to mean that the debtor cannot maintain a
minimally adequate standard of living and repay the
loan at the same time. Further, it
also requires a showing that the conditions that make repayment a
hardship are unlikely to improve substantially.
Courts in some circuits
will permit the judge to find that the debtor can repay a portion of the
loan without hardship, and to
discharge the balance of the loan.
Contesting the Enforceability of the
Loan:
Student
loans are contracts like any other
loan and are subject to challenge for fraud, etc. Also, students
loans are not enforceable when the
school has closed prior to the student
completing his education. These challenges could be raised in a Chapter
13 proceeding and decided by a bankruptcy
judge. In the usual Chapter 7, there is no dividend to creditors and
thus no reason for the bankruptcy
court to rule on the enforceability of a claim, outside of an adversary
proceeding to obtain a hardship discharge.
Challenging the
Loan Balance:
A pervasive problem in
student
loans is the state of the lender's records: the
loan has been transferred several
times and it is not clear just what is owed and whether all the
additional charges are in accordance with law.
Consider using an
objection to the claim of the holder of a
student loan in a Chapter 13
to get a judicial determination of the rights of the borrower. In
bankruptcy, the burden of proof is on
the creditor. Once a judge decides what is properly owed, principles
of collateral estoppel should make the decision of the
bankruptcy court binding on the lender
even if the repayment period on the loan
stretches beyond the end of the plan.
Living with
Student
Loans:
There is some small
comfort in the federal regulations which restrict the amount of a
student/borrower's wages that can be
garnished to repay a student
loan to 10% of the borrower's take
home pay. Of course, the lender has the right to intercept tax refunds
and apply them to the loan in
addition.
Student
Loan Debt
Links, Sources and Payment Alternatives
One option you may want
to consider is the
William D. Ford program, offered through the Department of
Education, which allows you to make reasonable, income-based payments
each year for 25 years, after which the unpaid portion of the
loan may be forgiven provided that
Congress does not decide to change the law in the interim.
Buy the
Book
Nolo Press publishes a
useful book on dealing with student
loans:
 Take
Control of Your Student
Loan Debt
Dallas Bankruptcy
Attorney
According to The Polk
Law Firm a Dallas
Bankruptcy
Lawyers. Attorneys and Counselors
(Tel) 214-742-9805. Give
them a call with any questions. |
