This Colorado couple received $ 200,000 in canceled student loans bankrupt.
Here’s what you need to know—and what that might mean for your student loans.
A recent court decision could render Easier so you can get rid of your student loans in the event of bankruptcy. Laura Paige McDaniel and husband Byron voluntarily filed for Chapter 13 bankruptcy after they couldn’t repay nearly $ 200,000 in student loans. McDaniel said she initially borrowed about $ 120,000 in student loan debt for college and graduate studies. Navient, their loan manager, argued that their private student loans could not be discharged in bankruptcy. The U.S. 10th Circuit Court of Appeals considered the following bankruptcy code question: Does an educational loan constitute “an obligation to repay funds received as an educational benefit?” ”
The United States Bankruptcy Code states that student loans cannot be canceled if they are:
- a loan made, insured or guaranteed by the government or funded by the government or a non-profit organization;
- an obligation to repay funds received as an education allowance, scholarship or allowance; Where
- a qualified educational loan.
Linen McDaniel v Navient Solutions, LLC, the 10th Circuit ruled in a 45-page ruling that a student loan does not constitute an obligation to repay funds received as an education grant. The court ruled that McDaniel did not have to prove “undue hardship” because McDaniel used certain student loans known as “Tuition Response Loans” to fund her living expenses while she was attending. school. These student loans, according to the court, did not constitute an “obligation to repay funds received as an education allowance”.
Cancel student loans
In general, unlike mortgage or credit card debt, student loans cannot be discharged in the event of bankruptcy. However, there are exceptions to this rule, especially if a student loan borrower can prove undue financial hardship. The Brunner The test is the legal test in all shorts except 8th and 1st circuit. The Brunner essay says:
- the borrower has extenuating circumstances creating a hardship;
- these circumstances are likely to persist throughout the life of the loan; and
- the borrower made a good faith attempt to repay the loan.
To discharge student loans through bankruptcy, adversarial proceedings (a lawsuit in bankruptcy court) must be filed, when a debtor claims that paying the student loan would create undue hardship on the debtor.
What this means for your student loans
This decision could have ripple effects with regard to student loans and bankruptcy:
- Cancel student loans: For example, the Mcdaniel decision can help you more easily pay off your private student loans in the event of bankruptcy.
- Private student loans: However, this does not mean that all private student loans can be discharged in the event of bankruptcy. For example, student loan debt forgiveness can only apply in cases where a private student loan exceeds the cost of tuition.
- Lenders can argue this: The case does not affect the ability of a student lender or a student loan manager to argue that a student loan is a qualified educational loan or has been granted by the government or an agency to non-profit and is therefore not releasable.
- The law applies here: Especially the Mcdaniel the decision only applies to the 10th circuit, so it is not the applicable law in the other circuit courts. (The 10th circuit includes Colorado, New Mexico, Oklahoma, Utah and Wyoming). However, other circuit courts may turn to the 10th Circuit for informative advice on their circuit cases.
- Federal student loans: The case does not impact public student loans (such as Stafford student loans or other federal student loan debt), which accounts for approximately $ 1.5 trillion in student loan debt in the United States, or over 90% of all outstanding student loan debts.
- Bankruptcy: It is also important to understand that each bankruptcy case involves unique facts and circumstances that may differ from yours. Therefore, you should not read this case as a free pass to cancel your student loans.
- Growing trend ?: On the contrary, this case may be part of a growing trend that may allow student loan borrowers to release certain private student loans in the event of bankruptcy.
How to repay student loans
Bankruptcy is not the only way to pay off student loans. Understanding all of your options and making the best decision for your financial situation is essential. You can explore student loan refinancing, income-based reimbursement and other student loan discounts as well.