Undue Hardship

Regular readers of this blog know that you cannot discharge student loan obligations through bankruptcy absent a showing of undue hardship. If you go broke borrowing money for expensive cars, houses, and monkeys/butlers, no problem, file for bankruptcy and start over. But if you go broke trying to better yourself through education, the government will make you beg and prove that you are sad and hopeless. Wonderful system we’ve got here.

We’ve also talked about how many people who might be eligible for undue hardship on their student debts don’t even try. The system is daunting and complicated, and I’ve argued that prostrating yourself in front of a bankruptcy court and letting them invade your life to the point of telling you how much you should be spending on your cell phone is not something that comes naturally to people with pride and dignity. This might be hard to understand for people who have never been in this situation, but I’d much rather be a “deadbeat” and have my wages garnished with the discretion on how I spend the rest than have some old judge tell me how much money I should be spending on breakfast.

When trying to get your debts discharged through bankruptcy, there seems to be no limit to what a judge can take into account to see if you are really desperate. But a recent Ninth Circuit opinion upholding a discharge by reversing the district court put one boundary on what a court can look at to determine if you’ve tried to pay your debts in “good faith.”

The court can’t look at your household and suggest that you pimp out your wife. So at least that’s something…

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After going through this week’s entries for Comment of the Week, it seems that many of our commenters really want an Above the Law T-shirt. There was some stiff competition (what up, Richard Brosner?), but in the end, we decided to address a topic that’s germane to anyone who has taken out a loan to attend law school.

Over Labor Day weekend, the New York Times had an interesting article about the apparent “ease” with which one can get student loan debt discharged through bankruptcy. And by “ease,” we mean that there’s a whopping 39% chance that you’ll receive a full or partial discharge, but only if you can show that you’re a lost cause to society without any semblance of dignity or hope for the future. Easy, right?

Well, actually, yeah. Because when you’ve got six figures of law school loan debt hanging over your head for a degree that you thought was going to be marketable and you’ve resigned yourself to a job as a sandwich artist at Subway just to make a buck, you’re going to lose hope pretty quickly.

And that’s exactly why our Comment of the Week was just so damn appropriate….

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I’ve said countless times that discharging student debts through bankruptcy is nearly impossible because you must make a showing of “undue hardship.”

Showing undue hardship is a very high bar, and it takes a very long time. Prospective law students don’t really understand the difference between student loan debt and something like credit card debt until it’s way too late. And even when it’s too late, most people (and many lawyers) feel that it’s not even worth trying to convince a bankruptcy judge that a person holding a J.D. has the “certainty of hopelessness” required to get student debts discharged.

But an article this weekend in the New York Times suggested that more people should give “undue hardship” a whirl. Sure, the guy the Times chose to feature is freaking blind, but even absent a physical disability, the article suggests that undue hardship might be a real possibility for most people.

Hey, it doesn’t hurt to try. At least, it hurts less than the likely plan B of stabbing out your own eyes….

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This may sound like advice coming from a broken record, but in case you are somehow still unaware of this very important fact, you generally cannot discharge your law school loan debt in bankruptcy. Sure, there’s an “undue hardship” exception to this steadfast rule, but it’s a difficult standard to meet.

The government will go to the ends of the earth to prove that you are capable of paying back what you owe and just unwilling to do so. To be frank, you’d probably be better off becoming totally and permanently disabled or dying, because then you or your estate would only have the ensuing tax nightmare to deal with.

Judges know that the burden of “undue hardship” is a difficult one to prove, and most of them probably think that it’s a load of crap. Unfortunately, most of them are unwilling to say so. But not this Oregon judge — she launched into a pointed, four-page critique of legal education, while ruling on a law school debtor’s attempt to discharge his student loans in bankruptcy.

No, she won’t grant you a discharge, but that doesn’t mean she has to like it. You know it’s going to be good when a judge cites to Above the Law while discussing student loans….

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* In case you’ve been sleeping under a rock, Mitt Romney picked Rep. Paul Ryan as his Vice Presidential running mate. Putting politics aside, this is a great pick, if only because Ryan is so handsome. Seriously, he’s a total stud. [Wall Street Journal]

* “How can I be the one guy with a good degree who is going to be chronically unemployed?” Sadly, many lawyers are still looking for jobs after (multiple) layoffs, but thanks to a lack of positions, employment is just “not in the cards” for them. [New York Times]

* Deadliest clerkship? The Washington, D.C. judge who presided over one of the most violent mass shooting cases in the nation’s capital was reportedly held up at gunpoint last week, with her law clerk in tow. [Fox DC]

* Something is rotten in the state of Denmark Texas. Judge Sam Sparks “know[s] the smell of bad fish,” and now wants to know why the USADA waited so long to bring charges against Lance Armstrong. [Bloomberg]

* After reversing a bankruptcy court’s decision that loan repayment would be an “undue hardship” for a law school debtor, a judge took the time to rip law schools a new one over escalating tuition. [Oregonian]

* Match.com class-action plaintiffs found no love in court after a federal judge ruled that the dating website hadn’t breached its user agreement. Much like their love lives, their claims aren’t getting any action. [Reuters]

* A man who is his own lawyer has a fool for a client: 23% of all cases filed in the federal court for the S.D.N.Y. are brought by pro se litigants, and the vast majority of them seem to have lost their minds. [New York Post]

Yesterday, my colleague Staci Zaretsky decided to make the case for why all the people who are dutifully paying off their law school debts should feel superior to those who default on their law school debts, or seek to discharge them through bankruptcy. As she wrote in her post, “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.”

Well, la, de, f***ing, da. It’s all well and good that Staci has never ever thought about availing herself of a financial protection that is readily used by rich people (and companies) should they make a ruinous financial investment. I’m also really happy that Staci apparently knew everything about what she was getting into before she decided to go into a whole lot of debt to the Western New England University School of Law.

But I’m sticking to the point that most people in their early 20s have no clue about what getting into six figures of educational debt will do to the rest of their lives. I still think that absent parental support of any kind, people in over their heads in debt should be able to file for normal bankruptcy without needing to show undue hardship.

The story shouldn’t be about students looking for an “easy” way out of their obligations. The story should be about helping 22-year-olds fully understand what they are getting into, and looking at all the options available for people to get out of horrible financial mistakes of the past….

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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….

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