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I’ve Struggled With Mental Health Issues and Student Loans and I’m Thinking of Bankruptcy – Jenny

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Question:

Dear Steve,

First, thank you for all the wonderful advice over the years.

Claimed bankruptcy in 1999 due to mental health issues. Time went on, rebuilt my credit, became older/wiser and got my credit score way up. Bought a house, had a child, got married, got master’s degree.

Partner left when child was 7 months old-right after legally getting married (same-sex), right after I received my master’s degree and right after we, as a couple, decided to add a garage to our property.

Back in the bankruptcy saddle again. Just had my court date Monday, 11/28. Never imagined to be in this situation again. My attorney, I believe, is pretty incompetent, but I had to hire one. I am actually finishing my paralegal degree at the community college where I work. We can take classes for free so I pursued this opportunity. With that said, I believe I am well versed enough to pursue this on my own.

He pretty much would not even consider my student loans and bankruptcy. At this point, after watching him in action, I believe I would be a better option for filing an Adversary Proceeding. He actually scared me with the little knowledge he appeared to have in front of the judge. But, water under the bridge. I need to at least attempt to get this loan/s discharged.

They are all federal as far as I know. It is over $130,000. I have a 3 year old son and am divorced and single. I have ongoing mental health treatment issues that will most likely be long term. I have also had to take some unpaid time off of work to pursue getting my mental health back on track as a result of the divorce.

Bottom line-I have never attempted to pay on my loans as I have always had deferment and/or forbearance on my loans. I work at a technical college which has allowed me to claim in-school status.

I have over $130,000 in loans which resulted in a master’s degree. With my mental health treatment, I have found it virtually impossible to be considered for any jobs that pay me what I need to pay off these loans. My mental health situation will be up and down most likely for my lifetime. Some of this time will probably require being off with unpaid time.

I’m lost. So many factors and I’m not sure where to start.

Jenny

Answer:

Dear Jenny,

Sounds like you’ve really had a tough go of it and have found some way to move forward. Good job!

Mental health issues are particularly demanding and impactful since they reach every corner of our lives in so many ways. The ripple effect is wide reaching.

It sounds like you have enough experience to attempt your own Adversary Proceeding. It is an option. But before you leap at that option, you might want to consider if your persistent and recurring mental health issues qualify you for a Total and Permanent Disability (TPD) Discharge.

The key here would be if “you are unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment that can be expected to result in death, has lasted for a continuous period of not less than 60 months, or can be expected to last for a continuous period of not less than 60 months.” – Source

Here are more FAQs on the TPD that will be helpful. If you are successful with the effort your loans would be forgiven tax free.

Next, being in deferment or forbearance with federal loans is not wise. You’d be better off dropping the loans into a new Direct Loan to consolidate them and then opting for an income driven repayment plan. Your payment may be as little as $0 per month and at the end of 20-25 years the balance would be forgiven. Right now you are losing out on the time in the loans towards forgiveness. More information can be found here.

On the bankruptcy effort front you should review these articles. You have a good argument to make but it depends on if you section of the country looks at the Totality of Circumstances test or the Brunner test to consider dischargeability. This is a fluid area right now. Even though the Department of Education has published this guidance on how to deal with federal student loans in bankruptcy, not everyone got the memo it seems.

In general, data research shows the people who are the most likely to win a bankruptcy discharge of their federal loans have the following characteristics.

  1. Less likely to be employed.
  2. More likely to have a medical hardship.
  3. More likely to have lower annual incomes the year before they filed for bankruptcy.

You should especially read Federal Student Loans Discharged in Bankruptcy. A Look at the Surprising 2012 Data and Cases.

Right now I’d have to say my general impression of how bankruptcy attorneys, the courts, and federal loan servicers handle bankruptcy filings is an inconsistent hot mess without any clear guidance of process.

So if you decide to go the Adversary Proceeding route, don’t be surprised if they fight back.


Big Hug!
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