Posted on

When Can Student Loans Be Discharged In Bankruptcy?

Black lawyer legal attorney book with LAW in gold letters and a mahogany judges mallet laying on top.

Student loan debt has skyrocketed past credit card debt in the United States. Mortgage debt is the only debt category with a higher amount in debt compared to student loan debt. According to one source, over 44 million individuals owe a combined $1.5 trillion in student loan debt. Graduates in 2017 owed an average of $40,000 in student loans. Most students spend over 19 years paying off loans they received for their college education. Sadly, almost 40 percent of borrowers are looking forward to defaulting on their student loans by 2023. When student loan debt is not dischargeable in a bankruptcy case, it is difficult to comprehend what a borrower should do if s/he can’t afford student loan payments.

Student Loans Be Discharged In Bankruptcy

Discharging Student Loans in a Chapter 7 Bankruptcy Case

Most student loans are not eligible for a bankruptcy discharge. Some debtors may qualify for a discharge of student loans. However, debtors must meet strict eligibility requirements to discharge student loans in bankruptcy. Moreover, the court must determine that debtor will experience undue hardship if the debtor requires to repay the student loans.

In February 2018, The Education Department announced that it would be reviewing the requirements for determining if a debtor qualifies for a bankruptcy discharge of student loan debt. Until the federal government changes the standards, the bankruptcy courts continue to apply the Brunner Test to determine if a debtor qualifies for a student loan discharge in Chapter 7.

The Three-Prong Undue Hardship Test for Discharging Student Loans in Bankruptcy

The court case of Brunner vs. New York State Higher Education Services Corp. established the three requirements for determining whether a debtor will experience undue hardship if required to repay student loans. Before a debtor can discharge student loans in Chapter 7, the court must find that the debtor meets all three requirements as outlined in the Brunner case.

The three-prong undue hardship test for student loan debt examines three factors:

  • Can the debtor maintain a minimal standard of living? The court examines the debtor’s anticipated standard of living if the debtor continues to repay the student loans. Basic living expenses such as food, clothing, and shelter include in the calculation of the minimal standard living requirement. There are some optional expenses, such as gym memberships, cell phone plans, and cable television. Typically they do not consider basic living necessities to evaluate a minimal standard of living.
  • Whether the debtor’s current financial situation is expected to continue.  If the debtor is being jobless for a short time, the debtor may not qualify for an undue hardship discharge. The debtor’s financial situation should be to continue for most of the term of the student loan. For instance, a debtor who may never work again because of a permanent disability may meet this requirement.
  • Has the debtor made a good faith effort to repay the student loan debt? The debtor must demonstrate that he or she paid the student loan payments until financial circumstances made it impossible to continue paying the monthly payments. The court may also consider whether the debtor tried to modify the loan payments, applied for a forbearance agreement, or made other financial sacrifices to meet their obligations under their student loan notes.
The interpretation of the Brunner requirements can vary from one jurisdiction to another jurisdiction.

It is important to work with an experienced Florida bankruptcy attorney who understands the Brunner Test. You will need assistance from a bankruptcy attorney in Florida to prepare and file the necessary documents to request a hearing. You also need an experienced attorney to argue why you should receive an undue hardship discharge of your student loans during the court hearing.

Call an Orange Park Bankruptcy Attorney for More Information

Tony Turner assists clients in Orange Park, Jacksonville, Lake City, Deland, Augustine, and the surrounding areas as they seek affordable solutions to debt problems. If you want to explore bankruptcy options to get rid of debt, contact The Law Office of Tony Turner for a free consultation.

Call (904) 679-2020 or use the online form to schedule your free consultation with a Florida bankruptcy lawyer.

Posted on

Three Debts That You Cannot Discharge in a Florida Bankruptcy!

Justice, Law, Lawyer, Attorney, Judge Mallet, Gold scales of justice sitting on conference table.

Scales of Justice, wooden mallet, discharge debt, student loansWhen a debtor files for bankruptcy relief, the “end game” is to get out of debt.  Most unsecured debts are eligible for a discharge in Chapter 7 and Chapter 13 bankruptcy discharge. But there are several debts that one cannot discharge in bankruptcy including: alimony or spousal support; child support; most debts owed to government entities; income taxes; and student loans. In some cases, a debtor can discharge income taxes if the taxes meet all of the requirements for discharge. Creditors may object to a debtor receiving  a bankruptcy discharge by filing an adversary proceeding with the court.   An adversary proceeding is a lawsuit filed with the bankruptcy court. 

Debts for Luxury Goods Within 90 Days of Filing Bankruptcy. Under §523 of the Bankruptcy Code, the court may declare a debt non-dischargeable if the debt was incurred under “false pretenses, a false representation, or actual fraud.” The code section does not explain or define these terms. 

One of the common types of transactions that fall within this category is the purchase of luxury goods within 90 days before filing your bankruptcy petition. If you incurred consumer debt to purchase $675 in “luxury” goods or services within the 90 days of filing your bankruptcy petition, the court will presume the debt is non-dischargeable unless you can prove that there was no intended misrepresentation or fraud. The creditor does not need to prove that you did not intend to pay the debt to win the case because of the automatic presumption that you knew you would be filing for bankruptcy relief within three months and would not be required to repay the debt.

Damages Related to Intentional Acts That Cause Another Person Injury or Damages.  Section 523(a)(6) prohibits a debtor from discharging incur debts because of the “willful and malicious injury” to another person. We can call these acts “intentional torts,” including personal injury judgments and settlements. A common example of a debt that is typically not eligible for discharge under this section would be a personal judgment related to a drunk driving accident or a drugged driving accident. Another example would be if the debtor intentionally caused another person injury by assaulting the person physically.

Contact an Orange Park Bankruptcy Attorney for More Information About Debts You Can Discharge in Bankruptcy.  Bankruptcy lawyer Tony Turner assists clients in filing bankruptcy and exploring other debt-relief options. If you want to discuss ways to eliminate your debts, Contact The Law Office of Tony Turner for a free consultation. Call (904) 679-2020 now to speak with an experienced bankruptcy lawyer in Orange Park, Florida.

 

Posted on

Student Loans in Bankruptcy. – Pending Legislation 2021

HELPING HAND IN SUIT, STUDENT LOANS, DEBT RELIEF, CONGRESS

Mortgage modification in bankruptcy , lawyer, attorney, orange park, DeLand., FLORIDA

A bill that’s being proposed to help discharge student loans in bankruptcy.

To amend title 11, United States Code, to improve the treatment of student loans in bankruptcy

SECTION 1. SHORT TITLE. This Act may be cited as the ‘‘Fostering Responsible Education Starts with Helping Students Through Accountability, Relief, and Taxpayer Protection Through Bankruptcy Act of 2021’’ or the ‘‘FRESH START Through Bankruptcy Act’’.

 Section 2. EXCEPTIONS TO DISCHARGE. Section 523(a) of title 11, United States code, is amended by striking paragraph (8) and inserting the following: ‘‘(8) for an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution, or for an obligation to repay funds received as an educational benefit, scholarship, or stipend received from a governmental unit or nonprofit institution, unless ‘‘(A) excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents; or ‘‘(B) the first payment on such debt became due before the 10-year period (exclusive of any applicable suspension of the repayment period) ending on the date of the filing of the petition; ‘‘(8A) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, Section 523(a) of title 11, United States code, is amended by striking paragraph (8) and inserting the following: ‘‘(8) for an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution, or for an obligation to repay funds received as an educational benefit, scholarship, or stipend received from a governmental unit or nonprofit institution, unless ‘‘(A) excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents; or ‘‘(B) the first payment on such debt became due before the 10-year period (exclusive of any applicable suspension of the repayment period) ending on the date of the filing of the petition; ‘‘(8A) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for ‘‘(A) an obligation to repay funds received as an educational benefit, scholarship, or stipend, other than an obligation described in paragraph (8); or ‘‘(B) any educational loan, other than a loan described in paragraph (8), that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;’’.

SEC. 3. EFFECT OF DISCHARGE OF CERTAIN STUDENT

LOANS. Section 524 of title 11, United States Code, is amended by adding at the end the following: ‘‘(n)(1) In this subsection: ‘‘(A) The term ‘cohort repayment rate’, with respect to a covered institution of higher education, means the percentage of student borrowers who are making at least some progress paying down their student loans within 3 years of entering repayment. ‘‘(B) The term ‘covered institution of higher education’ means an institution of higher education (as defined in section 102 of the Higher Education Act Act of 1965 (20 U.SC. 1002)) that ‘‘(i) is a participant in the Federal Direct Loan Program under part D of title IV of the Higher Education Act of 1965 (20 U.S.C. 1087a et seq.); and ‘‘(ii) has an enrollment of students that is not less than 33 percent students who have received a loan made, insured, or guaranteed under title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.)). ‘‘(C) The term ‘covered student loan’ means the original principal of a loan—‘‘(i) the first payment on which became due before the 10-year period (exclusive of any applicable suspension of the repayment period) ending on the date of the filing of the petition; and ‘‘(ii) used by the debtor to make a payment to a covered institution of higher education on behalf of the debtor for the purpose of attaining an educational benefit. ‘‘(D) The term ‘Federal Direct PLUS Loan’ means a Federal Direct PLUS Loan under part  of title IV of the Higher Education Act of 1965 (2024 U. U.S.C. 1087a et seq.) ‘‘(2) If a covered student loan is discharged in a bankruptcy case under this title, the covered institution of higher education to which the debtor of the bankruptcy case made a payment with the covered student loan shall pay to the Department of Education an amount determined in accordance with the following: ‘‘(A) An amount equal to 50 percent of the amount of the covered student loan that is discharged, if the covered institution of higher education, on the date on which the first payment on the covered student loan became due— ‘‘(i) had a cohort default rate (as determined under section 435(m) of the Higher Education Act of 1965 (20 U.S.C. 1085(m)) for each of the 3 fiscal years preceding that date that was equal to or more than 25 percent; and ‘‘(ii) had a cohort repayment rate— ‘‘(I) except for borrowers described in subclause (II), that was equal to or less than 20 percent; and ‘‘(II) with respect to borrowers who were graduate or professional students who received a Federal Direct PLUS Loan for enrollment at the institution, that was equal to or less than 35 percent. ‘(B) An amount equal to 30 percent of the amount of the covered student loan that is discharged, if the covered institution of higher education, on the date on which the first payment on the covered student loan became due— ‘(i) had a cohort default rate (as determined under section 435(m) of the Higher Education Act of 1965 (20 U.S.C. 1085(m)) for each of the 3 fiscal years preceding that date that was equal to or more than 20 percent and less than 25 percent; and ‘‘(ii) had a cohort repayment rate— ‘‘(I) except for borrowers described in subclause (II), that was equal to or less than 25 percent and more than 20 percent; and‘‘(II) with respect to borrowers who were graduate or professional students who received a Federal Direct PLUS Loan for enrollment at the institution, that was equal to or less than 40 percent and more than 35 percent. ‘‘(C) An amount equal to 20 percent of the amount of the covered student loan that is discharged, if the covered institution of higher education, on the date on which the first payment on the covered student loan became due— ‘‘(i) had a cohort default rate (as determined under section 435(m) of the Higher Education Act of 1965 (20 U.S.C. 1085(m)) for each of the 3 fiscal years preceding that date that was equal to or more than 15 percent and 8 less than 20 percent; and ‘‘(ii) had a cohort repayment rate (I) except for borrowers described in subclause (II), that was equal to or less than 30 percent and more than 25 percent; 13 and ‘‘(II) with respect to borrowers who were graduate or professional students who received a Federal Direct PLUS Loan for enrollment at the institution, that was equal to or less than 45 percent and more than 40 percent.’’.

Bankruptcy, Lawyer, Student loans, dischargeable

 

PLEASE CALL THE LAW OFFICE OF TONY TURNER IF YOU’D LIKE A FREE BANKRUPTCY OR WORKERS’ COMPENSATION CONSULTATION. 904-679-2020