A lot of people with large amounts of student debt consult with a Las Vegas bankruptcy lawyer only to hear that their debt is not dischargeable and there’s nothing they can do. Although both federal and private student loans are subject to one of two types of three-part “undue hardship” tests for dischargeablility, that doesn’t mean debtors never meet it or that the debt is absolute. There have been circumstances in which student debtors were able to discharge their loans by meeting the test. Here are some facts about those cases.
(1) To make student loans eligible for dischargeability, debtors must file for an adversary proceeding against the student loan creditor. In fact, most student loan debtors who do file bankruptcy never even try, assuming they will fail the “undue hardship” test.
(2) According to one analysis of student loan debtors in bankruptcy in 2007 , covering 169,774 cases, only 213 filed adversary proceedings. Of those 213 cases, bankruptcy courts granted full discharges in 51 of them, 30 partial discharges, an administrative remedy in 25 cases, and the remaining 107 debtors received no relief. That’s a 38 percent chance of at least a partial discharge.
(3) This same analysis found that four variables in particular increase the likelihood that a bankruptcy court will side with the debtor in an adversary proceeding concerning the debtor’s student loan debt. The four factors are whether the debtor: (a) has a medical hardship, (b) is unemployed, (c) is over 60, and (d) has dependents. Often these factors doubled the likelihood that the debtor received a student loan discharge.
(4) Debtors who were unemployed in the previous year or who had low monthly incomes were also more likely to receive a discharge.
(5) Medical hardships in particular tend to benefit debtors. Whether the hardship was physical, mental, or chronic, all were more likely to receive a discharge.
This last point has recent anecdotal confirmation: In May 2012, a 66 year-old Baltimore woman named Carol Todd successfully passed the undue hardship test because she had Asperger’s Syndrome, a variant of Autism. According to the National Law Journal, during the proceedings she “became overwhelmed when asked ‘seemingly innocuous questions’ and ‘folded into a fearful shell’ for no apparent reason.” She discharged $339,361 owed to her creditors.
If you owe a large amount in student loans, bankruptcy can help more often than the media wants you to think. A consultation with a Las Vegas bankruptcy lawyer can help you know your options, and even if your debts aren’t dischargeable, a Chapter 7 filing can help free up income for other payments.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Freedom Law Firm Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-903-1398 to set up your free consultation.