Student Loan “Hardship Discharge” Very Unlikely

A couple of recent decisions about student loan discharge should give you an idea about the very limited opportunity for a hardship discharge of student loans.   Thanks to the Consumer Bankruptcy  News for  reporting on these and other cases.

The first case is the Matthews-Hamad case from the Middle District of Florida.  In this case, the Chapter 7 debtor owed over $60,000 in student loans.  The debtor works at the Salvation Army as a counselor to battered and abused children.  She is a 45 year old single mom who supports a 12 year old daughter, a 24 year old daughter and a 4 year old great nephew.  The debtor’s income and expenses are around $2,500 per month and her budget does not contain any allocation for a student loan payment.

The bankruptcy judge concluded that the debtor’s low paying job was not a “special circumstance” to warrant a hardship discharge and that she could maintain a “minimal standard of living” by relying on income tax refunds and contributions from her adult daughter to pay the student loan.

In the Wells case, heard in the northern district of New York, the 53 year old debtor owed $80,827 in student loans incurred to finance his son’s education.  The debtor and his non-filing wife earned approximately $30,000 annually.

The bankruptcy judge refused to approve a hardship discharge, but did order the student loan creditor to defer payments interest free for a year.

The rules for student loan discharge vary depending on where you file your case -if you think that your case warrants a  hardship discharge you should speak with a local attorney.  However, I think it is fair to say that the two rulings discussed above are fairly typical.  Bankruptcy judges will be extremely reluctant to order a hardship discharge or a student loan.