Here is another successful case where a consumer managed to get all of her federal student loans discharged in bankruptcy.
The consumer originally filed a Chapter 7 bankruptcy in October of 2015. The secondary case, and Adversary Proceeding, was brought against the Department of Education and Great Lakes Education Corporation on February 18, 2016 in an effort to get the court agree the student loans should be discharged. The Adversary Proceeding was filed by a lawyer with the University of Arkansas School of Law Legal Clinic.
According to the Adversary Proceeding the debtor’s situation was:
“Debtor signed promissory notes for subsidized and unsubsidized Federal Stafford Loans with the DOE and Great Lakes Higher Education Corp. beginning in 2014.
Debtors outstanding principal balance on the combined loans is $16,333.00 as of February 18, 2016.
Debtor has been adjudicated by the Social Security Administration to be permanently and totally disabled since 1991.
Debtor has been unemployed since 1991.
Debtor believes, on information and belief, that her health is being affected, and will continue to be affected, adversely if her student loans are excepted from discharge.
Debtor applied for and received a Forbearance in October of 2015.
Excepting student loan debt from discharge pursuant to 11 U.S.C. 523(a)(8) will impose an undue hardship on the debtor.
Debtor is entitled to an undue hardship discharge of the aforementioned loans, as she is unable to earn a sufficient income to maintain herself at a minimal standard of living and repay the student loan debt.
Because the debtor has little chance of overcoming her existing medical problems and thereby improving her current financial condition, Debtor qualifies for a discharge of this loan under the undue hardship exception to non-dischargeability.” – Source
A United States Attorney responded to the suit and made the argument the discahrge should not be granted because “The Department offers Total and Permanent Disability (TDP) discharge for qualifying applicants. If the debtor is not eligible for a TDP discharge, the debtor has not yet exhausted all available resources in an attempt to repay her Department-held student loans. These loans are not in default, and as such, the debtor has been able to utilize various periods of deferment and forbearance enabling continued access to additional title IV benefits.”
The U.S. Attorney then goes on to say, “Dischargeability should be based upon the certainty of hopelessness, not simply a present inability to fulfill financial commitment.” – Source
As if this situation isn’t hopeless on it’s face value. The approach seems to be to want to make this debtor jump through more hoops.
United States Bankruptcy Judge Ben Barry was having none of that stuff. On April 4, 2017 he ruled, “Deborah Denise is entitled to a discharge of her student loan debts. For the reasons stated in open court on April 3, 2017, and incorporated herein by reference pursuant to Federal Rule of Bankruptcy Procedure 7052, the Court rules in favor of the debtor and finds it would be an undue hardship to require her repayment of student loans.” – Source
He also ordered that the balance of her student loans plus any accrued interest were discharged. – Source
The case seems to be yet another example of the type of situations that are most likely for a discharge.
And yet again as you can see, federal student loan debt CAN be discharged in bankruptcy.