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Case focused on student loans in personal bankruptcy

Most California consumers are aware that it is very difficult to have student loan debt discharged during bankruptcy. The U.S.Bankrupcy Code requires an individual who wishes to include student loans within personal bankruptcy to meet three standards, and the courts have a great deal of leeway when it comes to interpreting how those standards are met. In a recent case, a disabled woman with virtually no income was unsuccessful in having her student loan debt discharged, and her case is illustrative of the difficulty that many others face.

The woman, who is 45 years of age, is disabled and has been out of work since 2008. She initially borrowed just over $13,000 in student loans, but compounded interest has increased her total student loan balance to just over $37,000. When she filed for bankruptcy, she asked the court to include that balance within the discharge process. She has no source of income other than approximately $10,000 per year in Social Security and other forms of public assistance.

In order to have student loans discharged during bankruptcy, the law requires that the borrower demonstrate that repaying the loans would make it impossible to attain a minimal living standard. They must also prove that their current financial circumstances are expected to continue indefinitely, and that they have made "good faith" efforts to repay the loan. In this case, the court found that because the woman did not take advantage of loan consolidation or payment reduction programs, she did not meet the "good faith" requirement.

While the issue of student loan debt continues to be a political hot topic, California residents who are struggling to meet their monthly loan obligations have no immediate hope of relief. Personal bankruptcy will not eliminate student loan debt for the majority of consumers, but bankruptcy can lead to the discharge of many other forms of consumer debt. For many, having credit card debt or medical debt removed through the discharge process can lead to greatly improved financial circumstances.

Source: inquisitr.com, "Student Loans Can Not Be Discharged For Unemployed, Disabled Woman", June 23, 2015

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