The U.S. Supreme Court recently took up a question that's directly relevant to our practice as Irvine personal bankruptcy attorneys: How easy should it be to have student loan debt forgiven in bankruptcy? According to a Dec. 1 article from USA Today, the high court started hearing arguments that day in a dispute between a lender and a former student who had part of his debt wiped out in bankruptcy. Francisco Espinosa worked out a plan in 1992 to repay the principal on his student loans as part of a Chapter 13 bankruptcy. A federal bankruptcy judge agreed to the plan and forgave the remaining $4,000 in interest. But his lender, United Student Aid, later objected, arguing that the plan as illegal without a showing of "undue hardship" to Espinosa.
Under current laws, student loans cannot be forgiven in bankruptcy unless repayment would be an undue hardship to the debtor. Proving undue hardship usually requires a special hearing. However, bankruptcy courts are free to restructure debt to make it easier to pay. Espinosa's repayment plan took a middle ground by repaying principal but not interest. United was notified of that plan in 1992, when Espinosa's attorney designed it, and again six months later when the bankruptcy court approved it. Espinosa successfully completed the plan; the debt was declared paid in full in 1997. However, in 1999, United began demanding interest. In 2003, it filed a claim alleging that Espinosa's plan was void because he had never proven undue hardship. A federal appeals court disagreed, and the Supreme Court case followed.
The newspaper said the justices seemed inclined to find a balance between discharging all loans and requiring hearings even when the creditor does not object. As Riverside individual bankruptcy lawyers, we hope the justices find that balance in a way that eases the burden of student loan debt on ordinary Americans. A college education is almost mandatory for people who want to be able to earn a good living -- but the price has gone up faster than inflation. As a result, millions of young people are graduating with an average of around $20,000 in debt, and older workers are delaying homeownership and even marriage because of their debt. Particularly now that the economy is bad, it's difficult for people with less experience, or skills not in demand, to make the kind of money necessary to keep up with that debt. If one or two more negative financial events tip these students into bankruptcy, judges should have the discretion to reduce burdensome loans without endless hearings.
Howard Law LLP represents many people in this situation as part of our consumer bankruptcy practice. Our Redlands bankruptcy attorneys routinely represent people from all walks of life, including people with college and professional degrees, who are considering bankruptcy as a way to get control of debt they can't handle on their own anymore. That includes people with debts related to mortgages, credit cards, medical bills and more, as well as student loans. If you're considering bankruptcy, we can explain your options and help you decide if it's right for you. If it is, we can guide you through the process of setting up a Chapter 13 repayment plan like Espinosa's, or in some cases, a faster Chapter 7 liquidation. We also offer help with debt settlement and mortgage loan modifications for clients who do not need bankruptcy.
If you feel like your debt is controlling you, instead of the other way around, you should talk to Howard Law. We offer free consultations, so there's no risk and no further obligation from speaking with us about your situation and your options. To set up a meeting, you can call us toll-free at 1-800-872-5925 or contact us online.