Discharge of Debt Tag

02 Feb Income Contingent Repayment Plans & Student Loan Discharges in Massachusettsf

Two Massachusetts bankruptcy judges have disagreed about requiring a debtor to apply for the Income Contingent Repayment Plan when seeking a discharge of student loans. Student loans are discharged if, after a trial, one can prove that repayment will impose an undue hardship. Here in Massachusetts, that is commonly meant to be an inability to maintain a minimal standard of living. Student lenders commonly argue that a debtor can apply for the William C. Ford Program's Income Contingent Repayment Plan, which can reduce payments down to zero and forgive any remaining balance after 25 years. This alternative avoids the undue hardship, so goes the argument. But that forgiven balance will include unpaid interest, which can be many times the unpaid principal. It is taxable when forgiven, and both Social Security and tax refunds can be garnished to pay this tax liability. Judge William C. Hillman denied a student loan discharge in Brunell v. Citibank (SD) N.A. (In re Brunell), 356 B.R. 567 (Bankr. D. Mass. 2006). Instead, he ruled that any tax obligation related to the forgiveness of the student loan 25 years in the future would be discharged.
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