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Tuesday, July 17, 2012

For Student Loan Debtors, Bankruptcy Court Relief Can Exist for Some

Sometimes what civil plaintiffs want washes up against defenses like sea-waves against rock cliffs, and the defenses are generally unaffected, even after many waves, even after decades.
Despite this clause in the law, discharge of a student loan has been somewhere between extremely difficult and practically impossible. Today's case, Bene v. Educational Credit Management Corporation (In re Bene), AP No. 08-1167 K (Bankr. W.D.N.Y. June 26, 2012) is one in which a debtor got such a discharge. Ms. Bene, without any prior higher education, went to Canisius College at age 33 in 1981. At age 64, facing job loss, lacking a profession, lacking any debt other than 24-year-old student loan debt, she gave up educational opportunities to care for her sick parents, two decades ago. She lives and lived an austere life She has no TV; I envy her.). She had worked on an assembly line for 12 years at less than $13.00/hr. leading up to trial. She never completed her education, and so has no options for higher income now. She paid little toward her student loans, but paid what she could. The $25,000 payment from her parents in 1986 could have paid off her student loans, but she used it to care for her parents. The judge held that is nothing culpable about that in the Bankruptcy Code.
To distinguish from other cases, Brunner involved a debtor starting out on her career. (So did DeRose, albeit at age 50.) Bene was at the end of her rope at age 64, facing job loss and no prospects other than Social Security. The 1978 legislative history regarding efforts to discharge student loan debt concerned “abuses” of the “bargain.” The court found that there was no abuse in Ms. Bene's case.
Student loans used to be dischargable. Over time, they have become nondischargable except for undue hardship. The William D. Ford program, which allows collection efforts to cease after a lengthy period of token payments (Bene was offered a 25-year-payment plan, terminating at age 89.) is an attempt to make undue hardship under the Brunner test impossible to show.
Bankruptcy Judge Michael J. Kaplan sounds like an interesting guy, and an outstanding jurist. I'd like to meet him.
One other note- I didn't vet this with my friend Rick J. Deal, the finest consumer bankruptcy lawyer I personally know serving Montgomery County, Texas. He's usually a very busy guy this time of day, so he is in no way responsible for the opinions above.
Thanks to the New York Law Journal for the news about the case.

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