Sometimes Good Things CAN Happen in Bankruptcy for Student Loan Debts

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Order granting our Hero a discharge of her student loans

By: Donald L Swanson

Every now and then a good thing happens in bankruptcy. It’s not very often—but good things do happen.

Here’s a story of one of those good things [Fn. 1].

Our Hero (the bankruptcy Debtor) is a 54 year old, single mother of two college-aged children. She is a self-employed professional in a solo shop.

The Student Loans

Here’s what happened:

From 1991 to 2001, Debtor attended college, earning a doctorate degree in her profession and a masters in business administration—and she borrowed money to do so;

She married in 1998 and had two children while attending college;

On July 1, 2001, she consolidated her student loans for the principal amount of $118,847.47;

As of September 30, 2016, she had paid $132,957.82 on the consolidated loan, of which only $31,205.31 was applied to principal—leaving an unpaid balance back then of $96,676.34; and

With interest continuing to accrue, the remaining balance on May 9, 2018, was $101,409.

A Series of Unfortunate Events

Bad things happen to good people:

In 2005, Debtor and her husband separated, and he failed to pay any child support for two years;

Divorce proceedings began in 2006, with a final decree entered in 2010;

On August 28, 2009, her husband filed Chapter 7 bankruptcy, receiving a discharge of his debts but leaving Debtor obligated on $123,233 of joint debts—though she never received any benefit from those joint debts;

In August of 2012, a tree fell on Debtor’s home, causing extensive damage and forcing her to live elsewhere for 7 months—insurance did not fully cover the reconstruction costs she had to pay;

In August 2016, Debtor received a breast cancer diagnosis and had two surgeries, with two months of daily radiation treatments—she declined chemotherapy because she had already incurred medical bills of $12,024 that she could not pay;

As a result, she has struggled to maintain her health and her practice—both of which have suffered significant setbacks;

During her last medical exam, her physician recommended a double mastectomy, but Debtor cannot afford to miss work for the procedure—or its costs; and

Her physician also recommends a biopsy for uterine cancer, which Debtor decided not to pursue because she can’t afford it—her insurance plan has a $7,350 deductible.

The Discharge

Debtor filed Chapter 13 bankruptcy, seeking a fresh start.

She filed a lawsuit in the bankruptcy to get a discharge of her student loan—which the lender contested.

Here’s what happened next—in her own words:

“After almost two years” in the lawsuit, “the lender would not discuss settlement,” so “my attorney prepared a Motion for Summary Judgment”;

The Motion “did prompt the lender to ask for a proposed settlement offer”;

“I wanted to avoid a payment plan, so I decided to offer them my minimal retirement account (currently about $10,000)” against the “remaining student loan debt” which is now $102,000;

“I’m still in shock” because the lender’s response “was to ‘not oppose’ my motion!”—“They didn’t even take my retirement account as we offered”;

“The judge signed” the Order granting summary judgment in my favor—“so it’s official”; and

“I’m still stunned by this outcome.”

Some Afterthoughts

Here are some of her thoughts:

“I think the real take away is that it was a strong case that legally fit into the Brunner test”;

“I’m well aware that there are folks out there with very extreme circumstances that miss some of the legal standards, which is very sad to me”;

“In my case, the undue burden was that I honestly couldn’t pay both the student loans, maintain my very simplified standard of living, and now the medical costs and missed time from work from a cancer diagnosis”;

The “reality of our health care system and extreme costs for self-employed are evident”;

“I think the real strengths of the case were that I was committed to pay in good faith for almost twenty years, to the sacrifice of anything else”; and

“In the end, . . . the initial amount borrowed was more than repaid.”

Her Attorney

Here’s what she says about her attorney:

“Another element of this was the commitment of my attorney”;

“He really took a hit on his time and value as he wasn’t compensated for all the extra work, but he still pursued it”; and

“He was never giving me false hope but stuck with it anyway.”

A Final Word

She adds:  “But in the end, they did show a sense of compassion which I very much respect and hope continues with others.”

Conclusion

Good for her.

But why should it have been so hard for her to get a discharge?!

Footnote 1: All information and quotes are from Debtor’s own words or from the attorney’s brief supporting her Motion for Summary Judgment.

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