Are courts making it easier to discharge student debt?

On Behalf of | Feb 24, 2022 | Bankruptcy |

For those struggling with student loan debt, the news about bankruptcy courts discharging large amounts of student debt likely gives hope. Indeed, for the past five years or so, there seems to be news of student loan discharge every couple of months. But, does this mean that courts are making it easier to discharge student debt?

The standard for discharge

The current standard to discharge student loan debt is outlined in the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act. This law established a much stricter standard for borrowers to discharge student debt than any other debt type. The law mandates that the repayment of the student loan is an undue hardship on the borrower. This means that one cannot maintain a minimal standard of living, if they are forced to repay their student loans, and their financial circumstances are unlikely to improve. Moreover, they must demonstrate they made a good-faith effort to repay their student loans prior to filing for bankruptcy.

Wolfson v. DeVos

Recently, in Wolfson v. DeVos, a federal bankruptcy judge found for the borrower and discharged nearly $100,000 in student loan debt. The borrower, a 35-year-old man, argued that, since graduation, he has been consistently underemployed or unemployed, forced to work full-time in the gig economy. That was until an epileptic seizure caused him to total his vehicle and not maintain his gig work.

The judge’s reasoning

The judge found that the evidence demonstrated that the man was never gainfully or fully employed after college. And, that the only reason this man was able to survive is because his father paid for the man’s bills. The judge did not believe that the man’s future employment prospects would likely change. As a result, the bankruptcy judge ruled that the man proved the student loans were an undue hardship.

Government intervention moving forward

The current administration chose not to appeal the decision, which indicates that as judges become more permissive in their undue hardship interpretation, the administration will allow the discharges to remain. In addition, congress has multiple bills under discussion to make student debt discharge or forgiveness much easier. For Greensburg, Pennsylvania, readers looking for debt discharge, bankruptcy can now be a route, which may include student debt.

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