by Tony Sangiamo
Discharging (getting rid of) student loans in bankruptcy is…not easy.
In 2019, a gentleman named “Guy” filed a Chapter 7 bankruptcy here in PA without a lawyer.
He filed a Complaint within his bankruptcy case asking the Court to order that his $200,000 in student loan debt be discharged.
He is healthy and has a Masters degree in American Politics.
He spends all his time caring for his mother who suffered a debilitating stroke, and he is unemployed. His own budget is bare bones as the household he shares with his mother is supported solely by her social security benefits.
The Court denied his request for a student loan discharge.
His main problems were:
- He had never made a single payment on his student loans;
- He did not maximize his earning potential by, perhaps, finding home-based employment compatible with caring for his mother;
- He made no effort to restructure his student loans, such as an attempted loan consolidation;
- Nothing beyond his control placed him in his impoverished situation.
The basic requirement for discharge of your student loans has three parts:
- You can’t maintain even a minimal standard of living if forced to repay the loans;
- There are additional reasons why that state of affairs will continue into the future;
- You made a good faith effort to repay the loans.
No. 1 (Inability to maintain a minimal standard of living if you pay the loans) is true for many people.
No. 2 (Additional reasons why that inability will continue into the future) is hard to prove as one has to speculate about the future, though a physical impairment may help.
No. 3 (Having made a good faith effort to repay the loans) is the issue that sank “Guy” right off the bat, though.
While the Court acknowledged that Guy did minimize his other expenses, the Judge also noted that Guy made no effort to find even home-based employment, made no effort to structure the loans, and made absolutely no payments toward the loans, and therefore his condition did not arise from factors beyond his reasonable control.
The case shows that it is not enough to have what feels like a sympathetic position from a sentimental point of view in order to have your student loans discharged. After all, he did not cause his mother to have a stroke and no one can criticize him for deciding to live like a monk in order to care for his mother. The Judge himself mentioned how commendable that was. But, his own failure to attempt to improve his financial situation also caused his condition. In other words, his condition was his own fault.
So, what steps do you need to take before trying to discharge your student loans in bankruptcy?
Obviously, by definition, you can’t prepare by causing something beyond your control to happen to you.
If nothing beyond your control in fact has caused you to be unable to pay the student loans, then you don’t have much chance at getting rid of them in bankruptcy.
If, however, some such thing beyond your control has in fact put you in the condition in which you find yourself (no, I don’t think “the economy” having put you there is going to cut it), then you should try to be the opposite of our friend Guy:
- Try to consolidate the student loans;
- Try to maximize your income through efforts at finding work under the circumstances in which you find yourself;
- Even though it was not enough to save Guy, minimize your expenses as much as possible;
- Don’t simply rely on facts that would seem to place you beyond moral reproach (like Guy’s caretaking of his mother).
Doing those four things for a substantial period of time can help satisfy the Good Faith requirement.
Of course, that still leaves you trying to prove that some “additional reasons” are going to keep you stuck in the situation you are in into the future.
So, should you give up and accept that you can’t get rid of your student loans in bankruptcy?
Well, it is best to have other legitimate reasons to file the bankruptcy (getting rid of other debt that you truly cannot pay). That way, if you succeed in discharging the student loans, great! And if you don’t, then at least you accomplished something by filing bankruptcy.
Also, try to satisfy the Good Faith requirement above since you are supposed to try anyway. If you do make the good faith effort and still can’t pay the loans, and you do try to discharge the student loans in bankruptcy, then at least your attempt won’t fail for the same reasons that Guy’s case failed.
There may be other reasons in your particular case that might make discharge possible, such as fraud by the school you attended, etc.
Contact us today to see if any other such reasons apply to you. If they don’t, then let’s see how your situation compares to Guy’s condition.