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Nielson v. ACS, Inc. Shows How Tough Student Debt is to Discharge

August 5, 2012

One of the questions Los Angeles Chapter 7 Bankruptcy Attorney Vincent Howard is so frequently asked is whether student loan debt can be included in a filing. overloadedwithbooks.jpg

Generally, the answer is no. That's not to say it never happens, but it's rare, as Nielson v. ACS. Inc., argued before the U.S. Bankruptcy Appellate Panel for the Eighth Circuit demonstrates.

It's a tough answer to give, especially when student loan debts in this country have reached a crisis point of outrageous proportions that so often graduates may have no real hope of paying off. It's become a major issues this election year, and we truly hope it is something that is addressed by the legislature.

In the meantime, you may have the option of applying for an undue hardship exemption. The bar is set high for student loan forgiveness - and you are going to need the help of an experienced bankruptcy lawyer if you have any real hope of success.

That was the first critical mistake for "Neilson," who argued the case before the court on his own.

In order for a person to prove undue hardship, they must show that:

1. They can't maintain, based on current income and expenses, a minimal standard of living for both the debtor and his or her dependents if forced to continue paying on the loan;
2. Additional circumstances exist that show the current economic state of affairs isn't likely to abate anytime soon and in fact will likely persist for a significant portion of the repayment period;
3. The debtor has made a good faith effort to continue paying on the loans up to this point.

In this case, the debtor obtained an associate's degree at a technical institute after high school. He then went on to pursue a bachelor's degree part-time, though he did not finish. In 2005, those loans were consolidated and there is a total outstanding balance of nearly $50,000. The debtor is married with three young children and a fourth on the way. His wife has a master's degree, but stays at home with the children. She also has her own student loan debt, for which she is seeking discharge on other adversary proceedings.

The debtor has been employed consistently since he left college. He did suffer multiple work injuries, including two broken wrists several years ago, for which he was paid workers' compensation. Still, those injuries have made it increasingly difficult to work in certain types of weather and with certain equipment. He contended he was forced to switch jobs and take a $30,000 pay cut.

Tax returns indicated he was earning a gross income of about $26,000 a year. The family also receives government assistance, which equals about $315 a month for food.

Still, even given all this, the bankruptcy court found that the debtor had not met the threshold for undue hardship.

The appellate panel upheld that decision under 11 U.S.C. 523(a)(8). The panel further noted that the debtor, (remember he was representing himself) failed to comply with the rules governing appeals and stated that his narrative was disjointed. He described some 35 ways that the bankruptcy court erred in their initial decision and for most of those, he did not cite any portion of record and at times doesn't even include the records that he sites. The court said that even clients who represent themselves aren't excused from complying with the procedural law.

In other words, his paperwork was a mess, and that was at least part of the reason his appeal (and likely his initial filing) was denied. This is exactly the type of situation that can be avoided with a skilled bankruptcy attorney, who can tell you at the outset whether you have any hope of a successful filing for undue hardship at the outset.

While bankruptcy often won't discharge your student debt, what it can and will do is free you from other financial burdens, such as credit card debts, medical bills and auto payments - which will you put you in a better position to pay your student debt.

Los Angeles Bankruptcy Attorney Vincent Howard at Howard Law can help. You can reach us toll-free at 1-800-872-5925 or send us a message online.

Additional Resources:
Nielson v. ACS, Inc., U.S. Bankruptcy Appellate Panel for the Eighth Circuit, Justia Dockets

More Blog Entries:
Child Support Payments Can't be Discharged in a Chapter 7, July 15, 2012, Los Angeles Bankruptcy Attorney Blog