Wednesday, April 4, 2012

Boise Bankruptcy Lawyers - Student Loans; Can They Be Discharged in Bankruptcy?

Bankruptcy and Student Loans
As a Boise Bankruptcy Lawyer one of the most frequent questions I get from individuals considering bankruptcy is, "Can student loans be discharged in Bankruptcy?"  In general the answer is no, they are not dischargeable.  This is the answer for the majority of people but currently there are two possible sort loop holes that would allow student loans to be discharged, if the proper set of circumstances are met.

Undue Hardship
Student loans are non-dischargeable in bankrutpcy unless it can be shown that there is undue hardship.  Every bankruptcy attorney knows that this is a difficult standard to meet, but not impossible.  The bankruptcy court generally looks at three things known as the Brunner test.  Will the debtor not be able to maintain a minimal standard of living if he or she must pay the student loans?  Is there evidence that there are additional circumstances exist indicating that this state of affairs is likely to persist for a large part of the repayment period of the student loans?  Has the debtor made a good faith effort in repaying his or her student loans?

In order to qualify for the undue hardship exception you must file what is known as an adversary proceeding.  You must show the court the above information and from this they will make a decision whether or not your student loan debt should be discharged.

Alternative to Undue Hardship for Discharge of Student Loan Debt in Bankruptcy
Every bankruptcy lawyer knows that there are always loop holes.  In 2009 the 9th Circuit Court of Appeals heard a case that created just such loop hole.  Mr. Espinosa filed for Chapter 13 Bankruptcy.  Chapter 13 is a form of bankruptcy that does not discharge the debt, but creates a new repayment planThere isn't a discharge because the individual has a sufficient income to allow reorganization and repayment of the debt.  In his repayment plan, Mr. Espinosa's bankruptcy lawyers put forth the repayment plan for the student loans.  They said he would repay the loan absent the fees and costs attributed to the loans.  The bankruptcy attorneys included a notice that said that if the student loan lenders failed to object to the repayment plan the plan would be confirmed.  Their attorneys failed to read the repayment plan closely.  Mr. Espinosa completed the repayment of the balance of the student loans absent fees and costs.  The student loan company's lawyers filed for a completion of payment.  The court found that the student loan company had been sufficiently notified of the repayment plan and their failure to object resulted in a discharge of the remainder of the fees and costs associated with the student loans.

Legal Loop Holes
Because there are legal loop holes, every lawyer, whether they are a bankruptcy lawyer or a divorce lawyer, knows that they need to keep a keen eye open to possibilities.  If Mr. Espinosa's bankruptcy lawyers hadn't taken the chance to alter the repayment terms, he would have had to pay the entire loan back, fees and all.

If you would like to speak to an experience Boise Bankruptcy Lawyer who knows how to help you discharge student loans, give us a call, (208) 472-2383 and see what we can do for you.

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