Judge Denies Dismissal of Student Loans

In a recent bankruptcy case out of the Central District of California, a federal bankruptcy judge denied a petitioner’s request to eliminate his student loans in bankruptcy. This case was not a difficult one for the judge to decide, and it bucks the trend of recent reports that federal district court judges are becoming more lenient in student loan bankruptcy discharges.

The case, In Re Porter, involved a single man in his 30s who currently works part-time in two different jobs. One of the interesting things about this case is that the man recently had a well-paying job and could easily afford his $80,000 in student loans payments. Due to some of his recent choices, he no longer had that job and had moved on to something else.

A Change in Direction

Not unlike many today, the man in this case decided that corporate life was not for him. The bankruptcy petitioner in this case is well educated, with both a bachelors and masters degree in electrical engineering, and could likely find work in a number of places. He decided to quit his job and pursue other interests in life, none of which are as lucrative as electrical engineering.

Eventually he ended up in Southern California, living in a van, and making less than $60 a day. With two part-time jobs and no immediate prospects, he decided to try and eliminate tens of thousands of dollars in student loans through a bankruptcy petition. He soon learned how this can be a rather difficult process.

Student Loans and Bankruptcy; An Uphill Battle

As the court noted in its opinion, the Bankruptcy Code is an important and generous law that lets most debtors escape most kinds of debt and start a new lease on life. Following a bankruptcy, a person is allowed to pursue his or her life without the threat of collections or large amounts of debt hanging overhead. There are certain debts, like student loans, that are difficult to discharge in bankruptcy.

The Bankruptcy Code itself states that student loans are not dischargeable in bankruptcy unless there the debtor is facing an undue hardship. The Bankruptcy Code does not define what constitutes undue hardship, however, so the courts have enunciated a three-step test to determine if student loans can be discharged in bankruptcy. Under those three steps, a debtor can have his or her debts eliminated in bankruptcy if:

  • The debtor can not maintain on current income a minimal standard of living for him or herself and dependents if forced to pay the debts;
  • This set of circumstances is likely to continue into the future for a significant portion of the debtor’s repayment period;
  • The debtor has made good faith efforts to repay the student loans.

As you can see, this is an uphill battle, and qualifying for discharging student loans in bankruptcy is much harder than other debts.

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At the Bankruptcy Law Center we understand all of the debts and situations that qualify for help under the Bankruptcy Code. Our team of talented professionals are standing by to help you understand your options. Contact us today.

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By | November 2nd, 2018|Financial|Comments Off on Judge Denies Dismissal of Student Loans