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Case Law - Bankruptcy and Student Loans

Court Rulings - Case Law

These are court rulings where people were able to get their student loans discharged through bankruptcy.

We provided 20 different rulings where people were able to get their student loans discharged. Plus, within each court’s ruling are more cases where people were able to get their student loans discharged.

Therefore, it is not impossible. It just depends on the Judge.

It does not matter if the Judge is male, female, black, white, Asian, conservative, or liberal. Judges have their own biases and prejudices

The case law (court rulings) on Bankruptcy and Student Loans are all over the place.   These are some of the more reasonable rulings.

Student Loans Discharged – Court Rulings - Won

Fahrer v. Sallie Mae Servicing Corp. (In re Fahrer), 308 B.R. 27, 32 (Bankr. W.D. Mo. 2004).  

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“This Court agrees with the observation in Brown that requiring a debtor to participate in an extended repayment plan which significantly exceeds the debtor’s working life constitutes an undue hardship. Brown, 249 B.R. at 527-28 Long v. Educ. Credit Mgmt. Corp. (In Re Long), 322 F.3d 549 (8th Cir. 2003).  In a similar factual setting in Ford, the Eighth Circuit Bankruptcy Appellate Panel found that it was an undue hardship to require a 62-year-old debtor to participate in a 25-year repayment period pursuant to the Income Contingent Repayment Plan (ICRP). Ford, 269 B.R. at 677.“

Wiard, supra, at 389. 17.  “Under the Brunner Test, courts must not consider a debtor’s age when determining discharge under § 523(a)(8). This is inconsistent with Congress protecting debtors’ retirement accounts in Bankruptcy, paying off creditors as much as possible through the Bankruptcy Estate, giving debtors a fresh start, and allowing them to eventually retire.“

RETIREMENT ACCOUNTS – Emory Bankr. Dev. J. 341, 343-344 (2010).  “The Bankruptcy Code protects Social Security Income and private retirement accounts. See 11 U.S.C. § 522(b)(3)(C), (d)(12) (2012). Congress recognized that Social Security Income does not provide enough for a retiree to live a somewhat comfortable lifestyle; therefore, it created these sections to encourage people to save money for their retirement and protected those accounts in Bankruptcy.“

Krieger v. Educ. Credit Mgmt. Corp., 713 F.3d 882 (7th Cir. 2013). 

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“ECMC argues that there is no objective reason why the DEBTOR cannot work, as she is fifty-two years old with no dependents and suffers from no disability. But the second prong of the Brunner test requires a subjective prediction about the DEBTOR’S future. A bankruptcy court does not base its determination on what some hypothetical person with a debtor’s major attributes might achieve. The determination is based on the court’s judgment about whether and where this particular debtor is likely to work in the future and what she is likely to earn in the future.“

Bronsdon v. Educ. Credit Mgmt. Corp. (In re Bronsdon), 435 B.R. 791 (B.A.P. 1st Cir. 2010) 

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“The focus of the Income Contingent Repayment Plan (ICRP) is on deferral, not discharge, of debt. This is the antithesis of a fresh start. Congress has provided bankruptcy debtors relief which is not provided in the ICRP regulations. Compliance with ICRP regulations will not result in the same relief which can be granted by the courts under 11 U.S.C. § 523(a)(8).”

Bronsdon v. Educ. Credit Mgmt. Corp. (In re Bronsdon), 435 B.R. 791 (B.A.P. 1st Cir. 2010) 

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“ECMC presented undisputed evidence that its loans to the Debtor were eligible for the ICRP. Based on the Debtor’s adjusted gross income at the time of trial, the bankruptcy court found that her monthly ICRP payments would be $0.00. In its decision after remand, the bankruptcy court acknowledged that the Debtor was aware of the ICRP and her eligibility to participate, but stated that the fact that the Debtor would not be required to repay her student loan under the ICRP did not mandate a finding that her failure to participate in the program prevented a discharge of the debt. Acknowledging both the potential for significant tax liabilities under the ICRP and its concern that finding failure to participate in a zero payment ICRP is per se lack of good faith would be an abdication of the bankruptcy court’s responsibility to determine dischargeability of student loans, it ultimately concluded that: … shackling the Debtor to the ICRP would be … a pointless exercise. Although her current payments under the ICRP would be zero, interest would continue to accrue despite the fact that the Debtor’s chances of ever repaying any portion of the loan are virtually non-existent.“

If you want to know more about how an Income Contingent Repayment Plan might help, then please see Video 5, SOCIAL SECURITY, STUDENT LOANS, AND INCOME REPAYMENT PLANS. 

Vazquez v. United Student Aid Funds, Inc. (In re Vazquez), 194 B.R. 677, 680 (Bankr.S.D.Fla.1996) 

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“Holding that debtors, whose family was living below the poverty level even without repayment of the student loan, were entitled to undue hardship discharge of the debt) That approach is probably too harsh, at least as a general rule; an individual need not be reduced to poverty to obtain discharge of student loans. But the federal poverty level is perhaps worth noting“

In Re Cota, 298 B.R. 408 (Bankr. D. Ariz. 2003)

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“Even if Mr. Cota made no voluntary payments, “failure to make even minimal payments on student loans does not prevent a finding of good faith when the debtor never had the resources to make payments.” In re Brown, 239 B.R. 204, 209 (S.D.Cal.1999); see also, Speer, 272 B.R. at 197 (citing In re Lebovits, 223 B.R. 265, 274 (Bankr.E.D.N.Y.1998), and In re Clevenger, 212 B.R. 139, 146 (Bankr.W.D.Mo.1997)“

In Re Rose, 215 B.R. 755 (Bankr. W.D. Mo. 1997)

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“of course the defendants have pointed out that the debtors have made no payments on the student loans, and the court agrees that this fact would tend to negate any argument of good faith. However, since the debtors were operating at a deficit in the first place, there was no money to make such an attempt to pay the student loans. “[T]he mere failure to make minimal payments on a student loan does not prevent a finding of good faith where the debtor never had the resources to *766 make payments.” In re Clevenger, 212 B.R. 139, 146 (Bankr.W.D.Mo.1997) (quoting Courtney v. Gainer Bank (In re Courtney), 79 B.R. 1004, 1011 (Bankr.N.D.Ind.1987)). “Therefore, the debtor’s good faith takes into account her ability to pay, not just the fact of whether payment is made.” Id. Because the policy behind this test is that a debtor may not willfully or negligently cause her own default, but rather conditions must result from factors beyond [her] reasonable control, the debtor’s efforts to pay must be examined in light of the environment. “

Durrani v. Educ Credit Mgmt. Corp. (In re Durrani), 311 B.R. 496, 504 (Bankr. N.D. Ill. 2004) and Educational Credit Management Corp. v. Durrani, 320 B.R. 357 (N.D. Ill. 2005).  In re Armstrong, 2011 WL 6779326 (Bankr.C.D.Ill.) 

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“the availability of the ICRP cannot be a magic wand that when waved precludes discharge of a student loan debt. See Cheney v. ECMC, 280 B.R. 648, 665 (N.D. Iowa 2002) (“the William D. Ford Program is no silver bullet for student loan creditors to avoid discharge of student loan debts owing to undue hardship if the creditors . . . demonstrate that a particular debtor did in fact know about and understand such alternatives for resolving student loan debts”); Korhonen v. ECMC, 296 B.R. 492, 496 (Bankr. D. Minn. 2003)…”

Durrani v. Educational Credit Management Corp. (In re Durrani), 311 B.R. 496 (2004)

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“The First Prong of Brunner Asks Whether the Debtor Can Maintain a “Minimal” Standard of Living if Forced to Repay the Loan, Not Whether She Has Any Surplus Income.” Korhonen v. ECMC, 296 B.R. 492, 496 (Bankr. D. Minn. 2003)…”

Durrani v. Educ Credit Mgmt. Corp. (In re Durrani), 311 B.R. 496, 504 (Bankr. N.D. Ill. 2004) and Educational Credit Management Corp. v. Durrani, 320 B.R. 357 (N.D. Ill. 2005).  In re Armstrong, 2011 WL 6779326 (Bankr.C.D.Ill.) 

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“There are numerous published cases where a debtor’s monthly payment under the ICRP would be $0.00 – obviously an amount that any debtor can pay while maintaining a minimal standard of living – yet the court found the existence of undue hardship and determined that the student loan was dischargeable. See Cheney, 280 B.R. 648 (under the 8th circuit’s “totality of the circumstances” test); Fahrer v. Sallie Mae Servicing Corp., 308 B.R. 27 (Bankr. W.D. Mo. 2004) (“totality of the circumstances” test); Johnson v. ECMC, 299 B.R. 676, 683 (Bankr. M.D. Ga. 2003); Cota v. U.S. Dept. of Educ., 298 B.R. 408, 421 n.16 (Bankr. D. Ariz. 2003) (“The logic of applying for a program that allows the debtor a $0 ‘payment’ as a precondition to a finding of a debtor’s good faith, is lost on the court.”); Korhonen, 296 B.R. 492 (“totality of the circumstances” test); Gregoryk v. U.S. Dept. of Educ., 2001 WL 1891469 (Bankr. D.N.D. March 30, 2001) (“totality of the circumstances” test); Herrmann v. U.S. Dept. of Educ., 2000 WL 33961388 (Bankr. C.D. Ill. Feb. 7, 2000); Thomsen v. U.S. Dept. of Educ., 234 B.R. 506, 512 (Bankr. D. Mont. 1999) (even though monthly payment would be zero under the ICRP, the first Brunner prong “requires simply that the Debtors show they cannot repay the loans and maintain a minimal standard of living”).“

Durrani v. Educ Credit Mgmt. Corp. (In re Durrani), 311 B.R. 496, 504 (Bankr. N.D. Ill. 2004) and Educational Credit Management Corp. v. Durrani, 320 B.R. 357 (N.D. Ill. 2005).  In re Armstrong, 2011 WL 6779326 (Bankr.C.D.Ill.) 

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“Herrmann, 2000 WL 33961388, at *4 (discharging student loans where debtor who “will never have the income to make payments on her student loans . . . should not have to have these student loans hanging over her head for another 25 years . . .”). 

Another factor which this court may take into consideration in determining whether repayment would constitute an undue hardship is the psychological and emotional impact of the Debtor’s continuing liability for the repayment of such a large sum of money over such an extended period of time.  Durrani will be burdened by a huge and growing obligation that remains on her credit record.  The loan obligation blocks her ability to rent from another landlord who would perform a credit check.  Reynolds v. Pennsylvania Higher Educ. Assistance Agency (In re Reynolds), 303 B.R. 823, 836-37 (Bankr. D. Minn. 2004).“

The Debtor’s Mental Health

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“Courts should examine the effect of a debt on the health and well-being of a debtor separately from its effect on future employment and income opportunities. In re Reynolds, 425 F.3d at 533 N.6. pdf   See also In re Halverson, 401 B.R. 378, 2009 WL 396112 (Bankr.D.Minn.2009) pdf (considering stress the debt caused on the debtor’s marriage).

In re Reynolds, 425 F.3d at 533 N.6. pdf   Reynolds contends that undue hardship is not a strictly pecuniary test and that the bankruptcy court correctly held that the detrimental effect of the loans on Reynolds’s precarious mental health warranted discharging the debts. We affirm.“

In Re Bronsdon, 435 B.R. 791 (1st Cir. BAP 2010)

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“On appeal, the U.S. District Court for the District of Massachusetts (the “district court”) vacated the bankruptcy court’s decision and remanded the matter to the bankruptcy court to consider the impact that participation in the William D. Ford *794 Federal Direct Loan Program (the “Ford Program”) would have on the undue hardship analysis.[3] On remand, the bankruptcy court concluded that the Debtor’s failure to participate in the Ford Program was insufficient to overcome a finding of undue hardship under § 523(a)(8), and again discharged the loans.[4] ECMC appealed.

As set forth above, the Panel concludes that the bankruptcy court did not err in its legal conclusions after remand regarding the weight that the Debtor’s eligibility to participate in the ICRP should have in the undue hardship analysis, as well as its conclusion that the totality of the circumstances warranted a finding of undue hardship. Therefore, we AFFIRM.”

In Re Bronsdon, 435 B.R. 791 (1st Cir. BAP 2010)

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“given the Debtor’s lack of recent work history, narrow work experience, failure to pass the bar exam, age, unsuccessful attempts to find employment in a variety of fields, and unsuccessful attempts to sell a novel and acquire a patent, the Debtor had no reasonably reliable future financial resources other than the Social Security payments.”

Nys v. Cal. Student Aid Comm’n (In re Nys), 308 B.R. 436 (B.A.P. 9th Cir. 2004) 

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“We affirm the BAP. “Undue hardship” does not require an exceptional circumstance beyond the inability to pay now and for a substantial portion of the loan’s repayment period…………. Requiring that a debtor demonstrate that his or her financial prospects are forever hopeless is an unrealistic standard.

Note from the website FYIDIY, and not from this court ruling:  Exceptional circumstance is different than additional circumstances.  The law requires additional circumstances and not an exceptional circumstance.

10 More Court Rulings - Student Loans Discharged – Won

Educ. Credit Mgmt. Corp. v. Polleys, 356 F.3d 1302 (10th Cir. 2004)

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Hemar Ins. Corp. of Am. v. Cox (In re Cox), 338 F.3d 1238 (11th Cir. 2003)

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United Student Aid Funds, Inc. v. Pena (In re Pena), 155 F.3d 1108 (9th Cir. 1998)

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In Re Brooks 406 B.R. 382 (2009)

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In re Lee v. Student Loan Guarantee Found. of Ark. (In re Lee), 352 B.R. 91 (B.A.P. 8th Cir. 2006)

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Johnson v. ECMC, 299 B.R. 676

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Cheney, 280 B.R. 648

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Dale R. Larson v. …. Vargas v. Educ. Credit Mgmt. Corp. (In re Vargas), 2010 WL 148632.   

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Roth v. Educ. Credit Mgmt. Corp. (In re Roth), 490 B.R. 908 (B.A.P. 9th Cir. 2013)

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In Re Brown, 249 B.R. 525 (Bankr. W.D. Mo. 2000)

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Case Lost – Student Loans NOT Discharged

One can find numerous cases where people did not get their student loans discharged.  This case law might relate to most people

Educ. Credit Mgmt. Corp. v. Frushour (In re Frushour), 433 F.3d 393 (4th Cir. 2005) and Bronsdon v. Educ. Credit Mgmt. Corp. (In re Bronsdon), 435 B.R. 791 (B.A.P. 1st Cir. 2010).  

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“the second factor is, therefore, “a demanding requirement,” Brightful, 267 F.3d at 328, and necessitates that a “certainty of hopelessness” exists that the debtor will not be able to repay the student loans, id. (internal quotation marks omitted); see also Tirch, 409 F.3d at 681 (same); O’Hearn, 339 F.3d at 564 (same). Only a debtor with rare circumstances will satisfy this factor. For example, although not exhaustive, a debtor might meet this test if she can show “illness, disability, a lack of useable job skills, age, psychiatric problems, severely limited education, or the existence of a large number of dependents.” And, most importantly, they must be beyond the debtor’s control, not borne of free choice. Oyler v. Educ. Credit Mgmt. Corp. (In re Oyler), 397 F.3d 382, 386 (6th Cir.2005)“

“Indeed, court that has held a debtor CANNOT voluntarily take a low-paying job in her preferred field, and then refuse to repay her student loans by claiming undue hardship.  As the Fifth Circuit has explained, “nothing in the Bankruptcy Code suggests that a debtor may choose to work only in the field in which he was trained, obtain a low-paying job, and then claim that it would be an undue hardship to repay his student loans.” Id. at 93. This is the case because “it is not uncommon for individuals to take jobs not to their liking in order to pay off their student loans.” O’Hearn, 339 F.3d at 566. For example, the Sixth Circuit refused to discharge the debt of a married couple where one of the debtors chose to work in a low-paying job, as a pastor of a church. Oyler, 397 F.3d at 386. It found undue hardship was not present even though the debtors had three children and an annual income of $10,000 in the previous two years. Id. at 384.“