Last month our office was successful in discharging a student loan in a Philadelphia filed Chapter 7 Bankruptcy scoring one for the people! Chief Judge Eric Frank discharged all the federal student loans ($26,000) of Kristin Price, a single mother of three children.
It may sound unlikely, but Price, a healthy 29-year-old who works 20 hours a week in the field of work in which she obtained her degree, was able to discharge her student loans. It is usually assumed that student loans can be paid if the person is working in his or her field of study, but, in this case, with three children and expensive child care, the court ruled in her favor applying the much criticized, Brunner Test, to conclude that Price could not pay back her loan without undue hardship within the period of her original repayment plan.
To discharge a student loan under the Brunner Test a debtor must prove by a preponderance of the evidence that (1) she cannot maintain, based upon current income and expenses, a “minimal” standard of living for herself if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period for the student loan; and (3) she has made good faith efforts to repay the loans.
Herein lies the issue. Price was enrolled in a standard ten-year repayment plan and had seven years left. She opted not to enroll in an Income Driven Repayment program. If the Department of Education forced her to enroll in this plan, her repayment would extend for up to 25 years. The judge ruled that Price rejected the longer repayment plan in good faith, so he would only consider her financial obligation for the original 10-year scope. He also considered that the new, longer repayment plan would cause her to consolidate her loan, which would add interest on interest, further stressing her finances with no relief in sight.
This case is extremely important for these reasons. First, the Brunner Test’s requirement to determine whether a debtor’s financial situation could improve in the future is vague. The longer the future time period – the harder it is to predict and the court acknowledged that reality. The “future” should be defined as only the time of the original loan repayment if the debtor is acting in good faith. Furthermore, the court ruled that these cases should be reviewed on a case-by-case basis because each case is unique.
Based on your client’s special circumstances, he or she may be eligible to discharge student loans. Relief could be in sight! Feel free to have your clients consult with us to see how we may assist them in easing their financial burdens.