09 Oct2014
Written by CFB Blogger. Posted in Blog
We will continue with the complex discussion of student loan debt and bankruptcy in the United States.
Before the mid-1970s, student loans were dischargeable in bankruptcy cases much like auto loans or credit card debt. Congress, concerned about the potential for the fraudulent discharge of student loans, restricted their discharge when it introduced the current
Bankruptcy Code in 1978. Congress has since increased the limits on the discharge of student loan debt, with “undue hardship” as the exception.
However, Congress has never defined what constitutes “undue hardship,” leaving the determination to bankruptcy judges, who have adopted what is known as the
Brunner test.
“Undue Hardship” requirements include:
• The debtor cannot maintain, based on current income and expenses, a minimal standard of living for himself and his dependents if forced to repay the loans.
• Additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the student loan repayment period.
• The debtor has made good faith efforts to repay the loans.
In Ms. Morgan’s case, she filed for Chapter 7 bankruptcy in March of this year, listing assets of $8,100 and liabilities of $59,000, including $21,593, or what she now owes on the original student loan of $11,830.
In July, Morgan’s attorney filed an additional lawsuit, called an adversary proceeding, in the bankruptcy case. He has asked the judge to discharge the student loan debt under the “undue hardship” regulation. This hearing is currently being held. Her attorney argues that his client meets the criteria of the Brunner test, citing her low income, her reliance on food stamps and her taking care of her teen-aged daughter.
Morgan cannot afford health insurance and has accrued $10,000 in unpaid medical expenses following a recent hospitalization. He added that Morgan would have to stop her contributions of $69 a month to her 401(k) retirement plan if she paid for insurance through the
Affordable Care Act.
He also stated that his client has been in repayment programs for her student loan, including an income-based program that has allowed her to forgo payments on the loan until April 2015. The repayment program would require a monthly payment of about $250, to be paid over 26 months. Morgan’s financial situation is not expected to change so that she could succeed in the repayment program.
The
Pennsylvania Higher Education Assistance Agency originally guaranteed Morgan’s loan; however, the defendant in the case is the
Educational Credit Management Corp., which is authorized to fight her discharge request. ECMC wants Morgan’s claim dismissed, according to a recent court filing docket.
It is arguing Morgan’s circumstances do not meet the Brunner test, and that she has yet to exhaust remedies for repayment, such as enrolling in the William D. Ford Federal Direct Loan Program.
For experienced and knowledgeable Chapter 7 or Chapter 13 personal bankruptcy assistance, you can rely on the attorneys from
Client First Bankruptcy who have helped thousands of satisfied clients discharge their overwhelming debt. For your free initial consultation, please call our knowledgeable and compassionate lawyers toll-free at 800-383-6004. We answer our phones Monday-Friday from 8:30 a.m. – 6:00 p.m. And log onto
www.clientfirstbankruptcy.com for vital and timely bankruptcy information 24/7 so you can get the information you need when the time is right for you.
