Student Loan Undue Hardship: Where the Rubber Hits the Road

Through bankruptcy, you may be able to discharge all or part of your student loans by showing repayment is an undue hardship. Proving that may be easier said than done, and it’s decided on a case-by-case basis. Student loan Convenient Bankruptcy helps those with student loans make repayment more bearable. We’ll discuss how courts have looked at this issue.

The Student Loan Convenient Bankruptcy team of Oklahoma student loan attorneys can help you navigate the legal system to get past the unmanageable task of repaying tens of thousands of dollars in student loan debt. Do you want to discuss your options with a student loan attorney? Call us at 405-296-0079.

Undue Hardship and Discharging Your Student Loans

We’ve already discussed how proving undue hardship is key to discharging your student loan debt through bankruptcy proceedings. A couple of court cases illustrate what debtors face when confronting this issue. A debtor must establish three factors to the court’s satisfaction:

1. They can’t maintain, based on their income and expenses, a minimal standard of living for themselves and their dependents if forced to repay the loans
2. Circumstances are such that this will likely persist for a significant part of the repayment period, and
3. The debtor made good-faith efforts to repay the loans

Two court decisions show judges don’t take these requirements lightly.

Law School Graduate Who Didn’t Pass the Bar Exam

An undue burden discharge is for situations where the debtor truly cannot afford to repay the loans, according to the US Court of Appeals, Tenth Circuit, in a case involving a law school graduate, Gordon Nitka. The court agreed with the lower court the debtor established the first and third factors, but not the second.

The court stated:

• They must take a realistic look into the person’s situation and their ability to provide “adequate shelter, nutrition, health care, and the like”
• They should estimate the debtor’s prospects on “specific articulable facts, not unfounded optimism, and the inquiry into future circumstances should be limited to the foreseeable future, at most over the term of the loan”
• The debtor doesn’t have to show “a certainty of hopelessness,” but the student loan should be viewed as a “mortgage on the debtor’s future”

The court found that Nitka:

• Was relatively young (36 years old when he filed for bankruptcy)
• Had no dependents
• Is highly educated
• Twice failed the Arizona bar exam
• Had significant experience in “numerous” industries
• Capable of holding steady employment
• Had not taken any steps to work again in the insurance industry
• Doesn’t want to work in a restaurant
• Averaged putting in one job application per month from May 2018 to May 2019, when he gave up looking for a job
• Spent 100 hours a week on “new business ventures” including developing a mobile phone app and converting a bus to a vacation rental

The lower court found the debtor has “a strong potential for future employment should he choose to go back to work” and hasn’t shown his financial,

• Situation is unlikely to improve
• Difficulties will likely continue for a significant portion of the repayment period” (at least 21 years)

Nitka testified he needed the discharge because of his current situation and what he expects in the near future. The court found the debtor failed to show his circumstances would likely last for “a significant portion of the repayment period of the student loans,” so his situation was not an undue hardship.

Debtors Not Looking for Better Paying Jobs

Another Tenth Circuit case involved a married couple in New Mexico, Robert and Linda Alderete, who have three children. The husband made $8.50 an hour working for a landscaping company. He hadn’t looked within that industry for a better paying job, nor had he worked in the field of his college major (advertising/graphic design/visual arts).

His wife worked part-time for the Albuquerque Public Schools as an educational assistant in a kindergarten class. She didn’t work during the summer. To keep her job, she needed to take college classes (which she claims she can’t afford) or pass an exam.

The Bankruptcy Court found the debtors didn’t prove their case for the second undue hardship prong and the appeals court confirmed their decision. The lower court found the following:

• The debtors are relatively young (37 and 32)
• They have no medical conditions impeding their ability to work

The court stated their current circumstances aren’t limiting their ability to earn more in the future. “Plaintiffs have made no real effort to search for better-paying or additional employment.” They’re also not dealing with “exceptional circumstances” that could limit their ability to repay their student loans, such as a recent disability or an “exceptionally large number of dependents.”

Are Student Loan Repayments Very Difficult if Not Impossible?

Courts take the phrase “undue hardship” seriously. If there’s no end in sight for your situation and you’re making good-faith efforts to improve your situation, you may receive a partial or total student loan discharge through bankruptcy. The help you get from a student loan lawyer may be the difference between success and failure.

Talk to a Convenient Bankruptcy student loan lawyer at (405) 296-0059 or schedule a free consultation in our calendar so we can discuss your situation, talk about discharging your student loans, and provide you with options.

Mike

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