It’s pretty well known that discharging student loans in bankruptcy is really, really tough. The standard from the bankruptcy code is that the client must have an undue hardship, meaning that the client couldn’t meet a basic standard of living if forced to repay the loans. Plus the client must have made an attempt to repay the debt.
In order to discharge student loan debt, not only do you have to file the bankruptcy case, but you also have to file a lawsuit known as an adversary proceeding against the student loan creditor. This can be expensive and time consuming.
Because everyone knows it’s tough, we don’t get a lot of student loan discharge cases. But a recent case came to us that we just had to take. Our client, a Chicago resident, was a retired person on social security who had personally guaranteed his daughter’s student loan debt. The debt total was over $65,000. It was pretty clear that the undue hardship standard was met, but the client had not attempted to repay the debt in the past. To solve that problem, before filing the adversary, we offered to settle for a nominal amount, knowing that the creditor would reject the settlement.
End Result: We filed the lawsuit and ended up settling with the student loan creditor. The settlement was for $2,800, which was around 4% of the total debt. A great success for our client.
If you don’t think you meet the standard for undue hardship, it’s possible that there may be another solution to your student loan problem. We may be able to work with the creditor to settle, consolidate in Chapter 13, or come up with another solution.
If you are in the Chicago area and you have a question about discharging student loans in bankruptcy, feel free to give us a call for a consultation.