Most people, both lawyers and non-lawyers, believe that filing bankruptcy does not result in a discharge of a student loan. That, for the most part, is true under the 2005 Bankruptcy Act amendments. The code, as amended, does not provide for the discharge of a student loan in a bankruptcy. UNLESS…the debtor brings a lawsuit and asks the bankruptcy judge to make a determination that the continued existence of the student loan will create an “undue hardship” on the debtor. That “undue hardship” is the hard part — convincing a judge that in this particular case with this particular set of facts that this particular debtor will not be able to make any kind of meaningful payment on the balance of the student loans. Each federal judicial circuit uses its own method of determination of “what exactly is an undue hardship?” The Department of Education recently issued a guidance letter on whether a student loan dischargeability lawsuit will be litigated or whether the Department of Education will recommend agreeing to the discharge. Private student loan lenders have no such policy and it will be up to the individual creditor/lender to determine if their attorney will defend such a lawsuit vigorously or agree to settlement before a trial or go to trial to let the judge decide the issue.
This kind of lawsuit is not for the everyday person to attempt on their own as disastrous results can occur. This kind of lawsuit is not for the everyday attorney to file as the bankruptcy court has its own unique set of rules and its own way of doing business and conducting litigation proceedings. An experienced student loan litigation attorney is part of the toolbox that a debtor must have in order to successfully discharge a student loan with any certainty. Sometimes, litigation is not the answer. Litigation is expensive. Some attorneys require a large retainer; others will take payment plans. Sometimes, a better result is obtained through negotiation. Negotiation with a bankruptcy attorney or student loan attorney as your shield is also a way to reduce the balance of the student loan debt. Negotiation is also going to cost the debtor money. Debtors will need to choose where their funds are best placed — payment on a student loan balance that will survive until age 150 or payment to an attorney who can bring some relief to a financially stressed budget.
A list of qualified student loan attorneys can be found here; these attorneys attended workshops brought by Joshua Cohen, an attorney who made the decision to read every federal regulation on student loans and the issues regarding payments, bankruptcy and settling with the lenders. A list of experienced consumer protection attorneys who also handle student loan issues can be found by searching here at the National Association of Consumer Advocates. Bankruptcy attorneys who may deal with student loan issues in bankruptcy can be found here through the National Association of Consumer Bankruptcy Attorneys.
Can the battle be won? Yes! Pick the battle carefully. Choose your weapons carefully (a good attorney and a good set of facts).