One of the long-held rules in a Michigan bankruptcy was that debtors could not escape their student loan debt, even after filing for bankruptcy. Now, a recent court case may give those who are struggling with unmanageable student loans some hope that bankruptcy can be a way out of their situation.
Getting student loans discharged in bankruptcy is not impossible. However, it is extremely difficult. A borrower must show that they have made every reasonable effort to pay back the loans and that they will not be able to maintain a standard of living if they are obligated to repay them. They must also show that they will face the same circumstances post-bankruptcy that will make repayment of the loans impossible. Traditionally, courts have not discharged student loan debt.
This particular borrower owed over $200,000. Even after bankruptcy, he would have been $1,500 in the red each month factoring in his student loan payments. Here, the judge found that it would have been impossible for the borrower to maintain any standard of living, and he would have been right back in the same place given the amount of his student loan debt. This ruling is from one judge and is not a precedent. However, the hope is that other bankruptcy judges may start thinking the same way and give student loan debtors some relief.
Those in bankruptcy can always try to persuade the judge to discharge their student loan debt. A bankruptcy law attorney may help try to show the court that all of the factors apply that would allow the court to give the debtor a fresh start from their student loan debt. It is a high bar to get over, but the attorney might argue that all of these three factors apply.