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Although Student Loans Are Still a Challenge to Discharge in Bankruptcy, Under Certain Circumstances, Student Borrowers Can Be Successful

April 28, 2022

In a rare win for a student borrower, the U.S. Department of Education dropped its appeal of a bankruptcy judge’s ruling that would eliminate a Delaware man’s student debt.

The Chief Bankruptcy Judge of Delaware had ruled that Ryan K. Wolfson had proven “undue hardship,” the standard that must be met to discharge the debt in bankruptcy.

Generally, student loans are not dischargeable in bankruptcy, except in cases of “undue hardship,” which can be difficult to prove but are based on three criteria that are often interpreted narrowly:

  • inability to maintain a minimal standard of living if forced to repay the loans,

  • additional circumstances indicating that the inability is likely to persist,

  • the debtor has made good faith efforts to repay the loans.

Department Of Education Initially Appealed The Ruling

The Department of Education’s initial appeal of the ruling was based on the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act, which established stricter standards for borrowers to discharge their loans through bankruptcy. The act sets a very high bar for proving “undue hardship,” the main criteria for being able to discharge the loan through bankruptcy.

Significance Of The Ruling

The ruling by the Delaware judge is significant because the judge ruled that many courts have been too strict in their interpretation of what “undue hardship” means. Many other judges across the country share this view.

Although the Education Department’s decision to drop its appeal in this particular case is laudable, there are many other student borrowers who struggle to pay off their loans, and who have no realistic possibility of repaying the loans. Many were the victims of deceptive, predatory loan practices of for-profit colleges with low graduation rates and low post-college hiring rates for their graduates.

A Glimmer Of Hope For The Future?

There is bipartisan support in Congress for reforming the process for discharging debt when there is undue hardship. However, under current law, while the Wolfson ruling is encouraging, it is extremely difficult to discharge student debt through bankruptcy.

BransonLaw Can Help

At BransonLaw, we will fight for you and for your rights under the law. Although it is exceedingly difficult to prove “undue hardship” to discharge student loan debt in a bankruptcy proceeding, it is not impossible. We have helped many clients get back on their feet without being saddled with student debt.

We recently helped a United States military veteran who had been duped by a school that told him that the Department of Veterans Affairs would pay for a training certificate. The money ran out, and the school convinced him to take out student loans. They also told him that he had to take algebra and core classes that he did not yet have the background or prerequisites to take. He failed out and couldn’t afford to pay the student loans, which resulted in the Department of Education garnishing his Social Security disability. He had no way to pay his rent and was nearly evicted. He had been homeless in the past and his future seemed doomed. He contacted our firm after we did a radio show about the new Student Loan Program in the Middle District of Florida. We filed a Chapter 7 for him, and then we filed an adversary lawsuit to determine whether the student loans were an undue hardship. Although the Department of Education initially challenged the lawsuit, they eventually agreed to discharge his student loan debt. This was a great win for our client. He doesn’t have to worry about the Department of Education garnishing his Social Security any longer. The debt is gone.

If you have student loan debt that that you cannot afford to pay, please contact us to see how we can help you. We are ready to help you today!