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May 12, 2009

Student Loans in Bankruptcy

I volunteered once to take on a student loan case, i.e., file a complaint to have a loan discharged based on undue hardship.  Since then I get two or three emails or phone calls every week from someone who wants to file bankruptcy to get rid of their student loans.  I learned quickly that the person typically believes that you just go to the judge and tell them how miserable you are and the judge says something like "poor you, debt discharged."  So I wrote up a little blurb on how it works, i.e., full blown litigation, the Brunner tests, depositions, experts, trial and appeal.  Now I send the person my little blurb and I almost never hear from them again.  I assume the reaction is that I could not know what I'm doing and they will find a lawyer who does.  I assume many are shocked to find out that the litigation could easily cost $10,000 to $20,000 and likely fail anyway, at least in part.    

The biggest hangup for me is the Brunner requirement that the debtor must have made a reasonable effort to resolve the issue without bankruptcy.  The debtor is often being beat up on the phone by collectors who are telling them that they will take x amount per month and that x amount is some ridiculous number.  Is this a reasonable effort?  The collector won't sign anything or even give his name usually.  I've never even been close to reaching a settlement with a lender.  Part of that is very often because the debtor just doesn't want to pay.  The degree they got is not leading them to riches, the repayment is a long road, and they are looking for an easy way out. 

All of this is a lead-in to a nice article on student loans posted on the National Consumer Law website.  The article is entitled "Too Small to Help" and can be accessed here.  The article re enforces that private lenders in particular will not make deals.           

May 12, 2009 in Current Affairs | Permalink


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Thanks for the info on student loans.
Love to see the letter u send out to potential clients on this issue
all the best
greg jalbert
seattle bankruptcy attorney

Posted by: greg Jalbert | May 12, 2009 11:18:13 AM

Many years ago, when the standard was merely "hardship," I tried one of these cases against the Michigan Attorney General's office, representing the lender. The Assistant AG told me the federal government would reimburse the lender 90 cents on the dollar if the debt were discharged, but nothing if it were settled for anything. Thus, he told me, his bottom line was 90 cents on the dollar--if my cient could pay that, up front, in a lump sum, he'd settle for that. Otherwise, he had to litigate it. My client couldn't pay, we went to trial, on horrible facts for the borrower, and lost.

Posted by: Greg Jones | May 19, 2009 12:36:59 PM

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