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Student Loan Debt Relief

Oklahoma City Bankruptcy Law Firm

Student loan debt is a nondischargeable type of debt. But bankruptcy may still be a viable option.student loan debt oklahoma

To learn about more about filing bankruptcy and minimizing student loan pressure, contact us in Oklahoma City, Oklahoma. We do not negotiate with lenders to reduce your payments, but he will help you achieve debt relief through the bankruptcy process.

If you are dealing with student loan debts and are considering filing bankruptcy, please contact us to discuss your options with an Oklahoam student loan bankruptcy attorney.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.

Getting out of one's student loan obligations in bankruptcy case is a very difficult and potentially expense proposition.

The general rule when one files bankruptcy is that the debtor is discharged of his or her debts. There are a number of "automatic" exceptions, such as taxes, alimony and child support, and...student loans.

But then there's an exception to the exception: if you can demonstrate to the satisfaction of the bankruptcy judge that repayment of those student loans would constitute an "undue hardship," then the student loan or loans will be discharged.

But bankruptcy judges do not routinely find that repayment constitutes an undue hardship.

Note that discharging one's student loans in a bankruptcy proceeding does not relieve any co-obligors from their obligation to pay those loans.

Note that the burden of proving undue hardship is the debtor's, i.e., it's your burden to prove that an undue hardship exists; it is not the student loan guarantee company's burden of proving that it does not exist.

The seminal case in the student loan dischareability area is the early 1990s Brunner opinion out of the state of New York. That case imposed a 3 prong test to determine if the student loan debt is an "undue burden" on the debtor and can be discharged:

 three-part Brunner test requires the debtor to prove:

        (1) that the debtor cannot maintain, based on current income and expenses, a "minimal" standard of living for herself and her dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans.

The Tenth Circuit (which Oklahoma is a part of) in an opinion called EDUCATIONAL CREDIT MANAGEMENT CORPORATION, assignee of USA Group Loan Services, Inc., Defendant-Appellant, v. Nancy Jane POLLEYS, Plaintiff-Appellee further interpreted the test:

"We therefore join the majority of the other circuits in adopting the Brunner framework. However, to better advance the Bankruptcy Code's "fresh start" policy, and to provide judges with the discretion to weigh all the relevant considerations, the terms of the test must be applied such that debtors who truly cannot afford to repay their loans may have their loans discharged. Additionally, we think that the good faith portion of the Brunner test should consider whether the debtor is acting in good faith in seeking the discharge, or whether he is intentionally creating his hardship.

The first part of Brunner — that the debtor cannot maintain a minimal standard of living while repaying the student loan debt — comports with the legislative policy behind § 523(a)(8), that student loans "should not as a matter of policy be dischargeable. . .before [the debtor] has demonstrated that for any reason he is unable to earn sufficient income to maintain himself and his dependents and to repay the educational debt." Commission Report, supra, at 4-710. This first part should serve as the starting point for the undue hardship inquiry because information regarding a debtor's current financial situation generally will be concrete and readily obtainable.

The second Brunner element, which requires that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans, properly recognizes that a student loan is "viewed as a mortgage on the debtor's future." Id. However, in applying this prong, courts need not require a "certainty of hopelessness." Instead, a realistic look must be made into debtor's circumstances and the debtor's ability to provide for adequate shelter, nutrition, health care, and the like. Importantly, "courts should base their estimation of a debtor's prospects on specific articulable facts, not unfounded optimism," and the inquiry into future circumstances should be limited to the foreseeable future, at most over the term of the loan. Robert F. Salvin, Student Loans, Bankruptcy, and the Fresh Start Policy: Must Debtors Be Impoverished to Discharge Educational Loans?, 71 Tul. L.Rev. 139, 197 (1996).

Finally, an inquiry into a debtor's good faith should focus on questions surrounding the legitimacy of the basis for seeking a discharge. For instance, a debtor who willfully contrives a hardship in order to discharge student loans should be deemed to be acting in bad faith. Good faith, however, should not be used as a means for courts to impose their own values on a debtor's life choices.

This test somewhat softened the stance of Brunner.

In the opinion of many, the second prong is the most difficult to prove. If the debtor is bright, educated, articulate and relatively young, and many seeking student loan discharges fall into that category, many judges will conclude that although repaying the student loans in the present may not be disputed, especially in this economy, the debtor is capable of getting a well-paying job and repaying all or at least most of the student loans within the near-term futher..

Note also that challenging the dischargeability of student loan debt in a bankruptcy is litigation and is therefore potentially quite expensive. Occasionally the student loan guarantee company is willing to compromise quickly, but all too often they fight vociferously, potentially making the matter go all the way through mediation, discovery, and trial. Be prepared to have to pay a minimum of $5,000.00 to prosecute such a case, and that's just for the adversary proceeding; that fee does not include the cost of the bankruptcy itself. We understand that it is a bit incongruous to argue on one hand that you can't afford to repay the student loans and on the other have to pay at least $5,000.00 and potentially more in order to get out of those loans.

Note that student loan guarantee companies are rarely willing to negotiate a hardship discharge of student loans unless a bankruptcy is filed and an adversary proceeding initiated. You will not likely be able to negotiate a satisfactory compromise unless and until a bankruptcy case is filed.

Summarizing, the key factual questions that will determine dischargeability include:

  1. What is the balance of the loan or loans? Is the amount large enough to justify the cost of trying to get out of the loan or loans?
  2. Marital status?
  3. How much do you and, if applicable, your spouse earn?
  4. What other income comes in the door, such as pension income?
  5. What is your age, i.e., how many years left in the working world do you realistically have remaining?
  6. Can you demonstrate that you've done everything within reason to maximize your income? Sent out resumes? Gone on interviews? Explored the idea of taking a second job? Explored the idea of renting out a room?
  7. Can you demonstrate that you've done everything within reason to minimize expenses, such as living in an inexpensive area? Giving up the expensive car? Spending as little as possible?
  8. Can you demonstrate a good faith attempt to pay?

We hope the above is helpful.

If you have student loan debt and have already used all available forbearances and deferments, student loan lenders and/or guarantors may file suit or enforce a judgment against you. By filing a Chapter 13 petition, you can force the student loan lenders and/or guarantors into a payment plan of up to five years. During this time, you will pay a small percentage on the dollar toward your student loans. As long as you are making payments likely according to the Chapter 13 plan's terms, student loan lenders and/or guarantors cannot take action against you or your property.

At the end of the plan's terms, you will receive your discharge, but since student loan lenders and/or guarantors are generally not discharged, you will owe the portion of the student loans that were not paid during the Chapter 13 proceeding, plus the interest that accrued during the plan's duration.

 

For more information, or to discuss your situation with an experienced Oklahoma City bankruptcy lawyer, contact us today to arrange your initial consultation. Click here for a free bankruptcy evaulation.

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