Student Loans

Bankruptcy Protection Against Student Loan Dischargeability Insufficient to Deter Default

In Georgia and across the nation, high rates of unemployment have caused borrowers to default on student loans at an increasing rate, and the non-dischargeability of student loan debt in bankruptcy has not helped the U.S. Department of Education collect more money. The highest default rate on student loans was 22.4% in 1990, but default rates for student loans were as high as 15% in 2009. In fact, student loan debt has even affected historically employable professions such as lawyers and doctors; in 2010, 85% of lawyers who graduated from ABA-accredited law schools had a debt load of $98,500.00, but only 68% of the graduateds obtained employment positions within 9 months of law school graduation.

Options for Student Loan Forgiveness in Bankruptcy

Borrowers who cannot repay their student loans in Georgia or anywhere else in the country have limited solutions, such as deferrment or income based repayment; however, bankruptcy is not usually helpful for student loans.

The Adversary Proceeding

In Georgia, obtaining a student loan discharge in bankruptcy is extremely difficult, as a showing of extreme hardship is required. In addition, simply filing bankruptcy is not sufficient to automatically wipe out student loan debt. In order for the bankruptcy court in Georgia to consider whether student loans can be discharged in a bankruptcy case, the debtor must file a bankruptcy AND a separate proceeding known as an “adversary proceeding,” which specifically names the student loan company as a defendant and presents facts and law as to why the student loans should be discharged. The adversary proceeding is assigned a separate case number from the bankruptcy case and must be presented like any court case. That is, it will require a complaint, answer, and end in a trial before the bankruptcy judge in Georgia.

Undue Hardship Showing Requirement

Bankruptcy laws require a showing that repayment of the student loans will impose a hardship on the debtor, that the debtor cannot maintain a minimal standard of living if s/he has to repay student loans, that the debtor’s circumstances are likely to continue for a long time, and that the debtor has made good faith efforts to repay the student loans. Making these showings is extremely difficult and really require an extreme disability that would permanently prohibit a debtor from earning enough income to live and to pay student loans. Filing bankruptcy in Georgia is not usually the solution to student loan forgiveness, but may discharge other debts such as credit card debts and mortgage loans in order to free up money for student loan repayment.

Under bankruptcy law in Georgia, circumstances such as a long-term disability or illness that prevents a debtor from working and repaying his or her student loans could be strong evidence that the student loans should be discharged. In addition to the showing of such circumstances, the debtor must show that the debtor made good faith efforts to repay the loan. Voluntary payments of the student loans is a good way to show such efforts, but simply filing tax returns is sufficient when the debtor knows that the government will keep the tax return to apply to the government student loans.

If you have questions about the bankruptcy laws in Georgia and wish to speak to a qualified bankruptcy attorney in Atlanta, Georgia, please contact the Law Offices of Charles Clapp at 404.585.0040 for a free consultation.