At Behm Law Group, Ltd., we work with clients to guide them through Chapter 7, Chapter 12, and Chapter 13 bankruptcy cases and the bankruptcy code as a whole. We primarily work with individual consumers but also provide legal representation to small businesses.
If you’re struggling to make debt payments each month, it may be time for you to consider filing for bankruptcy to find permanent debt relief. However, in order to determine if filing bankruptcy would benefit your situation you must consider the types of debt you have. While debts like credit card debt, medical bills, mortgages, and car loans are readily discharged in bankruptcy, some other common debts, such as student loans, are largely excepted from discharge in the bankruptcy process. With the help of Behm attorneys, you can find out how helpful the current bankruptcy code in Mankato, MN and nearby regions will be for discharging your debts.
For those with high student loan debt, it’s currently difficult to have that type of debt discharged in bankruptcy. Under 11 U.S.C. § 523(a)(8), student loans can be discharged in bankruptcy only if a person is able to commence a lawsuit against a student loan lender and establish facts showing that retaining the debt would create an “undue hardship”. After the recent McDaniels v. Navient case, though, there may soon be ways to have student loan debt discharged more easily. In the McDaniels v. Navient case, Laura Paige McDaniel was able to have $200,000 discharged in a Chapter 13 bankruptcy.
Details of the Case
Laura McDaniels originally borrowed $120,000 in student loans to cover her tuition to undergraduate and graduate school. When it became difficult for her to keep making high payments on this debt, her loan provider, Navient, did not offer any options for a repayment plan because only federal loan providers are required to work with borrowers to establish lenient payment plans. Unable to pay student loans and other debts, McDaniels went into bankruptcy. While her bankruptcy was ongoing, Navient continued to add thousands onto her student loans in interest.
After some time of being unable to pay the huge outstanding debt, McDaniels petitioned the bankruptcy court to reopen her case and include her private student loan debt for discharge. Though Navient appealed to the 10th Circuit Court of Appeals, the lower bankruptcy court ruling that her student loan interest was not “an obligation to repay funds received as an educational benefit” because they “were not made solely for the ‘cost of attendance’” was affirmed. McDaniels, therefore, received a discharge of $200,000 in student loan debt.
What This Changes
While this will most likely not affect changes to the bankruptcy code immediately, it’s a sign that changes that would help those who have student loan debt are coming. With the additional changes the proposed Student Borrower Bankruptcy Relief Act may make to the bankruptcy code, it’s highly possible that the treatment of student loans in bankruptcy might be very different in the near future.