Undue Hardship? What Does that Mean??? Where Can I sign up???

Jerry, a reader of this blog, suggested that read this article. Man, it was dense as hell. In order to give it real justice, I need to print it out and study it. However, I felt that I needed to address the issue now. I've had more than a few readers express extreme desperation stemming from defaulting on their student loans so I wanted to put the article out there for people in that situation to STUDY in detail and, perhaps, devise a plan to discharge their student loans. I have to preface this post by saying that there's an ice cube's chance in hell that discharge is possible under the current laws. But it's possible. Let's say there's a 1% chance. I previously mentioned a bill that was put before Congress by Senator Durbin and I was unsure as to the result of the bill. This article gave the answer I was looking for:  

"... Politicians did not go far enough in their efforts... One need only look to congressional inaction on a little-heralded, yet extremely significant, bill that Senator Richard Durbin introduced on June 7, 2007 (the “Durbin bill”): an amendment to the Bankruptcy Code that would allow debtors in bankruptcy to discharge privately issued student loans. Enactment of the legislation would have constituted a unique push-back against the lender lobby, the kind that would have robustly championed the plight of student-loan borrowers. The leak of a document outlining the lobbying strategy of Sallie Mae, the nation’s leading provider of student loans, suggests that Congress may have failed to act on this front due to interest-group capture: Among other things, Sallie Mae’s tactics call for “substantial penetration of ‘first tier’ congressional offices for initial contacts,” hiring a Democratic lobbyist, and “arm[ing] Congressional Republicans and [the] Administration to combat irresponsible proposals.” " 

So, because of lobbyists, it died. Unfortunately, debtors don't have the money to lobby Congress and our failure led to a predictable result. 

"Tragically, Congress disregarded empirical evidence from a General Accounting Office study which found that less than one percent of all federally insured and guaranteed student loans were discharged in bankruptcy."  


When I said 1%, I was not kidding. It's nearly impossible to discharge the debt, and even more impossible to figure out how because of the lose or nonexistent standards. As I have stated before, the laws tightened up in 2005, when Congress fiddled with the bankruptcy code further. 

"By virtue of that legislation, for-profit lenders have been extended the special treatment that had been traditionally reserved for educational and nonprofit institutions."  

That's right. Prior to 2005, it may have been possible to discharge private loans. But now, they have the same protection as federal loans. I knew I hated George Bush for many reasons. I blame him for the War(s) and the Economy and his general idiocy.  

Now, I have one more thing to add to the list: "In February 2008, as the House of Representatives considered a bill to amend the Higher Education Act of 1965, it struck down a proposed amendment to the bill that would have made private student loans once again dischargeable in bankruptcy. Shortly thereafter, President Bush signed legislation in May 2008 that, in its current form, authorizes the Education Department through July 1, 2010 to buy certain federally guaranteed student loans that lenders cannot sell as securitized debt."  

I mean, really? Are you serious? Is that necessary? Is everything to big to fail? The article focuses on the 9th Circuit (West Coast?), but it's still telling of how courts view discharging of bankruptcy. 

They use the Brunner Test "which requires the debtor to establish that, on the basis of current income and expenses, repayment of the educational debt will preclude the debtor from maintaining a minimal standard of living. Put another way, the debtor must establish a current inability to repay his or her student loans by reference to a certain threshold quality of life—namely, a minimal standard of living. The U.S. Bankruptcy Appellate Panel of the Ninth Circuit (the Ninth Circuit BAP) has framed this inquiry as a function of whether requiring of the debtor an income increase or expense reduction would be unconscionable."  

I guess being a lawyer is like football. On any given sunday, a lawyer can score big and get a huge award in court or meet the right person and get a fatty job. But is it likely? I doubt that any court would give a lawyer the benefit of the doubt in this respect.  

And what is a minimal standard of living???? Well, the 9th Circuit kinda sorta answers that question: "While the Ninth Circuit BAP and the U.S. Bankruptcy Court for the Western District of Washington (the Western District of Washington) have refused to interpret the concept of a minimal standard of living as requiring a debtor to live at or below poverty, the Ninth Circuit BAP has made it clear that discharge will not be granted solely because the debtor may have to undertake “major personal and financial sacrifices,” including abandoning a middle-class standard of living.""  

Well, abandoning a middle-class standard of living SOUNDS LIKE poverty level. $10830, Folks. Yep. That's what they are expecting of you.  

This all seems so wishy washy. Why can't there be a hard and fast rule? Instead, the 9th Circuit has a list of factors that they consider: "Well aware that crystal-ball gazing may inherently be undisciplined, the Ninth Circuit has attempted to impart some measure of consistency in the future inability inquiry by setting forth a list of nonexhaustive “objective factors” that it assumes will be good predictors of such inability. Such factors include: (1) serious mental or physical disability of the debtor or the debtor’s dependents; (2) the debtor’s obligation to care for dependents; (3) lack of or severely limited education; (4) poor quality of education; (5) lack of usable or marketable job skills; (6) underemployment;  


So, I'm presuming that a 4th Tier may qualify you. But if you pass the bar, then how can any court say that you did not receive a quality education? So, maybe the answer is that one can discharge their debt if they meet the above factors and never passed the bar. As for marketable skills, everyone knows that law school gives you NONE. All of our skills are learned on the job. Maybe being suicidal will help as well.  

But wait, there's more: "(7) maximized income potential in the debtor’s chosen educational field and no other lucrative job skills; (8) a limited number of years remaining in the debtor’s work life to allow repayment; (9) age or other factors that prevent retraining or relocation that would facilitate repayment; (10) lack of assets to repay the loans (whether exempt or not); (11) potentially increasing expenses that outweigh potential appreciation in the value of the debtor’s assets and/or likely increases in the debtor’s income; and (12) the lack of better financial options elsewhere."  


So, what this tells me is that you're really not likely to have your student loans discharged if you're a young person. The courts want you to fuck up your whole life before they give you a chance to start fresh. Why would age and "limited number of years remaining in debtor's work life" be a factor. If you have a limited amount of time to work, then just stop paying and die. That will be an automatic discharge of the debt. The article went into all sorts of studies with different variable and the various success rates. I really don't have time to get into that here, but please do read it if you are going to attempt to have your student loan discharged.  


But the author also goes into factors that SHOULD be considered, but are not: "We would expect that the following financial characteristics—mea- sured as of or after the date that the adversary proceeding was filed—would be... significant predictors of a debtor’s current inability to repay his or her student loans: (1) the debtor’s monthly household income;142 (2) the debtor’s monthly household expenses;143 (3) the debtor’s monthly dispos- able household income; (4) the poverty ratio;145 and (5) the debt-to-income ratio."  

They also go on to say that "...none of these characteristics is statistically signifi- cantly associated with the extent of discharge obtained by the debtor."  

Of course, the article ends with the truth that we all know: "If we are to restore the higher education finance system to a harmonious state, congressional reform efforts need to begin by giving student-loan debtors in bankruptcy unfettered access to a fresh start."  

Exactly!!!