Bankruptcy, Law Schools, Money, Student Loans

Not Even Bankruptcy Will Make Your Student Loans Go Away

As we mentioned in Morning Docket, more and more law school graduates are trying to seek bankruptcy protection from their mountains of student loan debt. Bankruptcy? Really?

Now, we know that reading comprehension is tested on the LSAT, but apparently, once students complete the law school entrance exam, that skill goes right out the window. How do we know? Because law school graduates, who freely signed up for student loans as law students, are now trying to shirk their repayment responsibilities. They are the 99% (of people who sign on the dotted line and think nothing of it until it’s time to face the consequences).

All the documents these law school graduates signed and claimed to have read and understood prior to accepting their student loans — well, they had some words to say about bankruptcy. Important words. Here are some of them, pulled from my very own master promissory note:

We will discharge (forgive) your loan if: [y]our loan is discharged in bankruptcy. However, federal student loans are not automatically discharged if you file for bankruptcy. In order to have your loan discharged in bankruptcy, you must prove to the bankruptcy court that repaying the loan would cause undue hardship.

Aww, you think you’ve got an undue hardship, precious little snowflake? Well, think again….

Thomson Reuters News & Insight reports on the ruinous financial sob stories from some recent (and not-so recent) law school graduates:

When Diana Valle decided to intern at a bankruptcy firm during law school, she had no idea how useful the experience would prove – in her own case.

Shortly before graduating from the University of Maryland School of Law, the 26-year-old Valle, burdened with $150,000 in student debt and with no immediate job prospects, filed for Chapter 7 personal bankruptcy protection.

“I was really thinking it would be much easier to get a job,” said Valle, who now lives with her mother and recently landed legal contract work through a temp agency. “I knew it was bad, but I didn’t think it would be this bad.”

Valle, who represented herself, found out the hard way that federal law prohibits courts from discharging student-loan debt except in cases where repayment would create a so-called “undue hardship” on the debtor – a difficult standard to meet.

We’ve mentioned repeatedly in these pages that it is practically impossible to discharge student loan debt through the bankruptcy process. In fact, it’s estimated that “at best,” only 50% of student loan debtors are successful in their undue hardship claims. With that kind of a forecast, it looks like these people will either have to find a way to pay up, or default.

Back in June 2011, our own Elie Mystal wrote a series of posts about how he defaulted on his student loans (which, for the record, is different from bankruptcy). He called it a “survivable” situation. He had a wedding to pay for, and for him, defaulting on his loans was the preferable route because he didn’t want to be an “indentured servant” for the rest of his life.

Like Elie, I, too, graduated from law school with six figures of student loan debt. Like Elie, I, too, am planning a wedding. And you know what? I’m an indentured servant to my debts, and I don’t really mind. I’m just doing what I signed up to do. And many other law school graduates are doing the exact same thing.

Sure, when these people did my IBR calculation, they forgot that I enjoy living indoors (albeit in the ghetto), but I’m making the most out of an otherwise awful situation. I’ve figured out how to live on a budget — and save money — all at the same time. Instead of having an angel on my shoulder, I just picture Project Runway’s Tim Gunn repeating his magical mantra: “Make it work!” That’s my “survivable” situation.

Have I ever thought about filing for bankruptcy? Hell no. It might be hard, but I’m accepting responsibility for my actions. I’m paying back what I owe — slowly but surely, with not a single missed payment. To the many, many law school graduates who are struggling to get by, but are choosing to follow through with your repayment obligations, know that you’re not alone.

We are the people you don’t hear about in the news. We’re not going out and protesting in the streets, but we’re here. We exist. How about you give us some publicity?

Law grads go to court – for bankruptcy protection [Thomson Reuters News & Insight]
In ‘Perfect Storm’ of Hard-to-Find Jobs and Stagnant Pay, Law Grads Can’t Escape Hefty Student Loans [ABA Journal]

Earlier: Student Debt: The Bad Thing I Forgot To Mention
Student Loan Debt: What’s the Worst That Could Happen?

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