While bankruptcy has many causes, in recent years, student loans have garnered attention for their uneasy relationship with bankruptcy. Many clients here in Louisville recognize that they generally cannot discharge student loans in bankruptcy. What many of them do not recognize is that there may be circumstances where the loans may be subject to discharge.
The standard used by the bankruptcy courts in Kentucky is "undue hardship." The standard, while daunting, is sadly becoming more easily met, as more debtors are stuck in low-wage jobs. If they have accumulated a significant amount of student loan debt, and have only been able to secure employment in low-wage occupations, there is a very real possibility that they may never be able to pay the loans off.
Even the Wall Street Journal raised its eyebrow at some of the arguments used by attorneys for the loan servicers. One case involved a Kentucky woman who dropped out of a culinary arts degree program due to problems with a pregnancy.
She was 26, and earning $9 an hour with two children. The loan servicer's attorney blithely noted that she was in "prime" of her earning years, and had many years to left continue earning that "prime" salary. Of course, having children age 1- and 2-years-old to care for, rent to pay, food to buy and transportation expenses to cover, all on $1560 per month could be somewhat tight.
Another case involved the loan servicer's attorneys arguing that a man with $130,000 in loans, who earned $12.41 an hour, didn't really need to take anti-depressants. They further argued that he should drive 800 miles to obtain them at a lower price.
If you are drowning in a sea of student loan debt, speaking with a bankruptcy attorney is probably a good idea. Every case depends on its facts, so having an attorney review your financial situation is the best way to determine if bankruptcy could help with your student loans.
Source: Wall Street Journal, "5 things student loan lawyers ask borrowers who file for bankruptcy," Katy Stech, January 6, 2013