A Response to ‘The State of Student Loan Debt in Bankruptcy”

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I recently came across an insightful article on JD Supra titled "The State of Student Loan Debt in Bankruptcy" by Kimberly Black. The article delves into the complex issue of student loan debt and its dischargeability in bankruptcy. As a bankruptcy attorney based in Florida, I feel compelled to respond to some of the points raised in the article and provide my perspective on this critical issue.

The article begins by discussing the Supreme Court's ruling that the Biden administration did not have the authority to forgive student loans under the Higher Education Relief Opportunities for Students Act of 2003 (HEROES Act). Despite this setback, the administration continues to work towards reducing the burden of student loans. The article rightly points out that student loans can be a crushing form of debt, primarily due to their treatment in bankruptcy.

The common belief is that student loans, unlike other forms of unsecured debt, are not dischargeable in bankruptcy. However, as the article explains, under section 523(a)(8) of the Bankruptcy Code, a discharge of student loans is possible if the debtor can demonstrate an undue hardship. The definition of "undue hardship" is not explicitly provided in the Bankruptcy Code, leading to different interpretations and tests across various courts.

The article discusses two primary tests used by courts to determine undue hardship: the Brunner test and the totality-of-the-circumstances test. Both tests have their critics, and the article does an excellent job of highlighting the issues with each. The Brunner test, for instance, was designed to prevent abuse of the bankruptcy system by recent graduates seeking immediate discharge of their loans. However, the test seems ill-suited for adults who may be burdened with student loans years or even decades after graduating.

The article also delves into the differences between government and private student loans. It explains that while government student loans automatically fall under section 523(a)(8), private loans only do so if they meet the definition of a "qualified education loan" as per section 221(d)(1) of the Internal Revenue Code of 1986. This distinction places the burden of proof on private lenders to show that their loans fall under section 523(a)(8).

While the article provides a comprehensive overview of the current state of student loan debt in bankruptcy, it also underscores the harsh reality that very few student loans are actually discharged in bankruptcy. This is partly because most borrowers don't even attempt to discharge their loans, and even when they do, they may still face collection attempts.

In my experience as a bankruptcy attorney, I can attest to the fact that the process of discharging student loans in bankruptcy is indeed a high hurdle. However, it's crucial to remember that each case is unique, and there may be circumstances where discharging student loans is possible. It's always advisable to consult with a bankruptcy attorney to understand the options available to you.

In conclusion, the article by Kimberly Black provides a valuable perspective on the state of student loan debt in bankruptcy. It's a complex issue that requires further discussion and reform. As a bankruptcy attorney, I am committed to helping my clients navigate these complexities and find the best possible solutions for their financial situations.

Jeffrey Hakanson, Esq.