February 21, 2022 | Bankruptcy

There are nearly 43 million federal student loan borrowers in the country who have an interest in how the student loan payment freeze affects them.  The Biden administration extended the federal student loan repayment moratorium to May 1, 2022, which is less than 90 days away. It was originally set to end on Jan. 31, 2022.  Borrowers should expect to receive a billing statement in early April, according to the Department of Education.

For some, restarting student loan payments will put stress on the household budget that has not been felt in awhile.  I have spoken to some concerned borrowers recently about their repayment putting their budget in the red.  Some borrowers are starting to ask about eliminating student loans in bankruptcy.

The intersection of bankruptcy and student loans is not the same across the country.  Nebraska and Iowa are both located in the 8^th Circuit and our circuit has its own approach to this issue as spelled out below.

The 8^th Circuit Approach to Student Loan Discharge

A debtor seeking a COURT ORDER to discharge (“eliminate”) his/her student loans bears the burden of proving that repayment of the loan(s) will impose an undue hardship.

To obtain this court order the debtor must file a bankruptcy case AND a separate lawsuit (known as an adversary proceeding) within the bankruptcy case to secure the discharge.  There are separate fees for these two proceedings.

“Undue hardship” is not defined in the Bankruptcy Code, so courts have devised their own methods for determining what undue hardship means.  Our circuit, the 8^th Circuit, has developed a “totality of circumstances” test, which reviews the following:

1. The Debtor’s past, present, and reasonably reliable future financial resources.
2. The Debtor’s reasonable and necessary living expenses.
3. Any other relevant facts and circumstances.

If the Debtor’s reasonable future financial resources will sufficiently cover payment of the student loan debt – while still allowing for a minimal standard of living – then the debt will NOT be discharged.

The Debtor’s past, present, and reasonably reliable

future financial resources

The Debtor who seeks student loan discharge should prepare a detailed history of his/her finances from graduation to the present.  A complete employment history, including wage earnings, and details of efforts to secure better employment, should be presented to your attorney.  If you have received higher education, such as an associates, bachelors, masters degree (etc.) you should identify your degree and how many years you have worked in that field.  If you have not worked in your degree’s field, explain why not, and what efforts you made to break into the field.  If you have passed up opportunities to gain employment, explain why.

FOR EXAMPLE: If you received your masters degree in English and received your teaching certificate, but were unable to secure employment as an English teacher, explain where you applied and the reasons you were given for not being hired.

Reasonable and necessary living expenses

Prepare a budget that identifies your MONTHLY living expenses.  For certain categories, such as groceries or gas for your vehicle, you may need to estimate.  Gather utility bills and other statements that prove expenses for rent, cell phone, vehicle insurance, etc.  If you have dependents or a significant other, you should provide that information.  If your significant other has a source of income, those earnings should be disclosed as well.

If you have made any large purchases since your last student loan disbursement that may not be considered ‘necessary’ such as a timeshare, expensive vacation, extra vehicle, or jewelry, identify said purchase(s).

Other relevant facts and circumstances

If you have any health conditions, disabilities, or take any medication, please disclose and provide details.

Detail every effort that has been made to repay your loans to date.  If you have placed your loans into forbearance or deferment, identify the time periods.  If you were on an income-based repayment plan, provide the monthly payment amount and time period.  Provide copies of correspondence you have sent to your loan providers.

If you have ever received government assistance, such as food stamps, provide the dates you received those benefits.

If any family members assist you with your expenses, provide the dates and amounts of assistance.

If you have any expenses you have put off, such as a vehicle repair, home maintenance repair, or any other necessary expense, please provide that information to your attorney.

Conclusion

The process of eliminating student loan debt is involved, the bar is high, but it is not impossible to accomplish.  If you are considering debt relief, contact High & Younes to discuss your finances with a professional who can provide expert legal advice.

Student Loan Discharge