Discharging Student Loans in Bankruptcy
I am excited to share with you a new resource for information regarding student loans as published by the National Consumer Law Center. Their Borrower Assistance portal offers answers and and solutions to student loan borrowers however they do not provide legal advice. This issue has also attracted the attention of Congress who recently held an oversight hearing on the matter.
Student Loans, in general, are not dischargeable in bankruptcy, absent undue hardship. 11 U.S.C. Section 523 (a)(8) provides that the debtor must show that the payment of the student loan debt will “impose an undue hardship on the debtor and the debtor’s dependents.” Courts have interpreted this standard very restrictively, which makes it very difficult for even the most vulnerable to receive a discharge. A recent case, Booth v. U.S. Department of Education, et al., 10 CBN 1093 (Bankr. E.D. Wash. 2009) held that debtors can prove undue hardship even if their Income Contingent Repayment Loan Program (ICRP) payments are zero. The Ninth Circuit Court asked, in Craig v. Educational Credit Management Corp., 19 CBN 1039 (9th Cir. 2009), how the bankruptcy court thought the debtor could pay their student loan.