WITH DISCHARGE OF STUDENT LOANS IN BANKRUPTCY THE FACTS DETERMINE THE LAW
PART ONE OF THREE PARTS
By Jay Weller
The mainstream media is reporting on a recent case pertaining to the Discharge of Student Loans in Bankruptcy, in which the Supreme Court elected to not hear on Appeal, as an indicator that Student Loans will remain essentially impossible to Discharge in Bankruptcy. This reporting is misleading regarding the availability to Discharge Student Loans in Bankruptcy.
For example, The Wall Street Journal Articles first sentence declares that the Supreme Court “turned away an appeal that sought to make it easier to erase student loans in bankruptcy, sidestepping an issue that has become a focal point for consumer advocates and lawmakers as millions of borrowers fall behind on their payments”.
Mark Tetzlaff, an unemployed 57 year old, Wisconsin man sought to Discharge approximately $260,000 in Student Loans, in a Chapter 7 Bankruptcy. The man, who allegedly lived with his mother, and who survived along with his mother, solely based upon her Social Security income, claimed that his Student Loan should be Discharged because his alcoholism, depression and criminal record prevented him from finding gainful employment. Mr. Tazlaff twice failed the bar exam.
The Court denied that Mr. Tazlaff’s Student Loans should be Discharged in the Bankruptcy, and noted that Mr. Tazlaff failed to make a solitary payment on his Student Loan Debt.
The Court in Tazlaff applied the Brunner Test in determining whether the Student Loan should be Discharged in Bankruptcy. Under Brunner, in order for a Student Loan to be Discharged in Bankruptcy, the Debtor must demonstrate:
- He cannot maintain a minimal standard of living for himself or his dependants if required to pay the Student Loans; AND
- Additional circumstances exist indicating that his financial condition is likely to persist for a significant portion of the loan repayment period; AND
- That he made a good faith effort to repay the Student Loan.
The Debtor argued that the Court should apply the test used in the Eighth Circuit in determining whether the Student Loan should be Discharged in the Chapter 7 Bankruptcy, and not the Brunner Test. The Brunner Test is the Test used in the majority of the Circuit Courts in determining Dischargeability of Student Loans in Bankruptcy, including the Circuit in which Mr. Tazlaff’s Case was decided.
The Eight Circuit Court Test that Mr. Tazlaff was referring was found in the Case of Conway v Collegiate Trust. In Conway, the Debtor graduated with $118,000 in Student Loans and a B.A. in Media Communications. Conway allegedly experienced a number of lay-offs from employment subsequent to her graduation from the University. The Student Loan provider contested the Discharge of the Student Loan Debt, and the Missouri Bankruptcy Court agreed, deciding that the Debtor had 30 more years to navigate the employment market, and indicative of her ability to repay the Student Loan.
The Debtor Appealed the Decision of the Bankruptcy Court in Missouri, and the Eighth Circuit Court Overturned the Lower Bankruptcy Court, and declared that the Student Loan should be Discharged in Bankruptcy. The Court held that in determining the Discharge of Student Loans one should look beyond Brunner and examine the Debtor’s “past, present and future financial resources to determine whether the Student Loans present an Undue Hardship”.
The Court found that her Degree did not enable the Debtor to make enough money to make minimum monthly payments, based upon the fact that the Debtor was laid off from prior employment, had applied to hundreds of jobs in the meantime, and was currently working as a waitress.
The Debtor did not appear to gain a full Discharge of her Student Loans, because while the Court in Conway held that the Debtor did not make sufficient earning to pay on all 15 of her Student Loans, the Court Remanded the Case to the Bankruptcy Court to determine whether the Debtor could pay the minimum payment on any of the 15 Student Loans.
The Test applied in Conway is not really very different from Brunner, but it does provide some guidance in determining when a Student Loan may be Discharged in Bankruptcy.
If you have a Student Loan and am considering whether to file Bankruptcy to seek the Discharge of the Student Loan, please contact my Law Office at either 1-800-407-3328 or 727-539-7701. I will be able to speak with, or meet with you directly, to discuss whether such Student Loan can be Discharged in Bankruptcy. Weller Legal Group has Offices located throughout the Tampa Bay area, including Clearwater, Port Richey and Lakeland.
Image credit: Andres Rodriguez