As reported in this blog, the U.S. Department of Education has issued new guidelines to lenders regarding when a discharge of student loans should not be contested in a debtor’s bankruptcy. The new rules open up some avenues that did not exist in recent years, both nationwide and here in Arkansas. Additionally, bankruptcy judges are granting more undue hardship discharges in cases that may not have been considered undue hardship until recently.
For example, in March, a bankruptcy judge ruled that a school teacher with a Ph.D. who earns take-home pay of almost $3,000 monthly plus an additional $500 for child support would suffer undue hardship if forced to pay the estimated $915 per month toward her student loan debt of $112,000. The court found that she previously made a good faith effort to pay and that if she must make the payments demanded she will not be able to maintain even a minimal standard of living. Additionally, her circumstances are expected to extend for the foreseeable future.
A critical issue surfaced in the case. The lender argued that the debtor should stop contributions to her teacher’s pension fund so that she can pay her student loan. The court found that the difference would not be substantial enough to require her to give up her effort to establish a fund for retirement.
Moreover, although student loan rules would theoretically qualify the debtor for a $17,500 annual credit due to her teaching in a rural district, the lender rejected her for the credit for three years in a row. Although the creditor also urged that she should enroll in an income-driven repayment plan, the court held that this is not required where the undue hardship requirement is met. For those in Arkansas and elsewhere who have overwhelming student loan debt, there is growing hope for the possibility of obtaining bankruptcy relief. It may in fact be an ideal time to consult with an experienced consumer bankruptcy attorney to find out what options may be available.
Source: The Huffington Post, “Teacher Discharges Loads of Student Loans in Bankruptcy. ECMC Fights Back.“, Steve Rhode, July 28, 2015