Restricting Student Loan Discharge In Bankruptcy Repealed?
Q: So, I called Sallie Mae about my private loan delinquency. They told me to phone T.E.R.I. I called T.E.R.I. Default Prevention Dept. They told me to phone the debt collector. I phone the debt collector. My options are: A) Pay the past due amount in full ($3245) B) Default I found out from T.E.R.I. that I can't even apply for an extended forbearance request because the default claim has been filed on my loan. This is hell. I also have a co-borrower on this loan. I worry more about her credit, income, and assets than I do about my own (mostly because I have none). So, I started reading an interesting article last night by Ray Woodcock (www.geocities.com/CapitolHill/Senate/3215/article.htm). It's from a while ago, but the following caught my interest: "More precisely, subsection (8)(A) provides that such loans are dischargeable [in bankruptcy] if their repayment has been actually due for more than seven years, and subsection (8)(B) provides, in the alternative, that they are dischargeable if nondischarge would impose an undue hardship on the debtor and his/her dependents.6" So, does this still hold true? If my private educational loan has been in repayment for more than seven years, it will be discharged if I file bankruptcy? My last question is this: is there a movement to change the ease of student loan default (by lenders, guarantors, and collection agencies being more flexible and offering more options) and/or to have the law restricting student loan discharge in bankruptcy repealed? If so, I'd like to join. If not, I'd like to start one. Btw, I've paid $20,000 already on this loan that is about to default. That doesn't even work in my favor in trying to prevent the default. Not only that, but only $710 of that $20,000 has gone to principal. This whole situation makes me feel like life is not worth living.
A: So, here's the update on this situation: I called the debt collector again, because I thought I would propose an arrangement where I make payments on the past due amount of $3245 while resuming my monthly payments. This would take me about 7 to 8 months to bring the loan current. The debt collector said, "You'd never be able to catch up." I pointed out that making double payments would bring my account current in 7 to 8 months. He said, "We don't have that time." Huh? This loan is in repayment for about 10-15 more years, but giving me 7 months to catch up is too much time? I replied, "Oh, so you'd rather be after me the rest of my life?" He started yelling at me for being 240 days delinquent (he didn't even give me a chance to explain *why*), so I said, "Thank you for your time. Good-bye," and hung up. The only other solution I could think of is to consolidate my federal loans and this private loan. It's not a common thing to do, but I did find one lender who will do it (I will post about this separately). However, the debt collector told me Sallie Mae won't let me consolidate their loan because it is 240 days past due. This, I really don't understand. If consolidation would pay the loan off, what would be Sallie Mae's problem with it. If I qualify for the consolidation loan (which it doesn't look likely, atm), I will check with Sallie Mae about this. Also, regarding my previous question about student loans being discharged in bankruptcy if they've been in repayment for 7 years: I think this all changed in 1998, and they are no longer dischargeable unless one can prove undue hardship. I posted this at misc.legal: "I know that student loans are no longer discharged under bankruptcy, unless one can prove them to be an undue hardship. I have two student loans, one federal and one private. I am currently in an Economic Hardship Deferment with my federal loan. The monthly payments on these loans total $460. My monthly income is between $400 and $500. If I end up having to file bankruptcy (which I really don't want to do), what are my chances in having these loans discharged? I'm in West Virginia. The federal loan has been in repayment for six years; the private educational loan has been in repayment for nearly nine." Here's the one response I got, from a Brett Weiss: "The answer varies depending on which state you live in and the decisions of the bankruptcy and appellate courts of that state. The principal case discussing student loan hardship discharges, which has been adopted in a number of states, is Brunner v. NY Higher Education Services Corp., 831 F.2d 395 (1987). For specific cases dealing with the particular facts and circumstances persuading and dissuading courts concerning the undue hardship test, as a starting point, I would suggest the article written by Jennifer L. Frattini found at 17 Bank. Dev. J. 537 - Emory University School of Law's Bankruptcy Development Journal - Spring 2001 entitled "The Dischargeability of Student Loans: An Undue Burden?" The author discusses and cites many cases concerning student loan undue hardship dischargeability. Another article worth reading is entitled "Playing the Get Out of College Free' Card: Dischargeability of Educational Debts in Chapter 7 Bankruptcy" written by Julie J. Heimark and published in 1997 by Pepperdine Law School's Law Review at 25 Pepp. L. Rev. 531. The challenge is that courts have applied and weighed various factors (e.g. living with parents, if debtor permanently or temporarily disabled, living in mobile home with wife and kids, etc.) differently and sometimes subjectively. The court in In Re Brown 227 B.R. 540 (Bkrtcy. S.D. Cal. 1998) held that the debtor satisfied the Brunner test and was able to discharge his law school student loan. The court discusses in great detail the debtors' income, expenses, living conditions and other factors that persuaded the court in its findings. Are you permanently or temporarily disabled? That's a factor that has been heavily weighed in favor of discharge." If anyone here has anything to share regarding my undue hardship question, I would be grateful to hear it.
So how did it all pan out? I found this post researching my own student loan dilemma.
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