Recent Bankruptcy Case Wipes Out Massive Student Loan Debt

Filing for bankruptcy is one of the most effective ways of getting a fresh start when your bills have gotten beyond your ability to pay. It has proven to be a particular relief for those faced with medical debt following a traumatic injury or illness, but it has not been available to those suffering from another common reason for unmanageable debt: student loans. As the student loan crisis has ballooned, the inability to have debt discharged in bankruptcy has been a subject of much debate, and this has only been increased by the recent decision of a New York bankruptcy judge who ordered that a man’s $221,000 student loan debt be discharged.

The case involved a man named Kevin Rosenberg who originally took out $116,000 in student loans in order to attend college. Mr. Rosenberg requested that his debt, which had nearly doubled to $221,000 over the years, be discharged in bankruptcy on the grounds of undue hardship. Though undue hardship has traditionally proven extremely difficult to prove for borrowers trying to discharge student loans, Mr. Rosenberg pointed to the many good faith efforts that he had made to pay off his debt, but the inability to do so because his income had remained low over the decades since he had originally taken the loans out.

One of the reasons that proving undue hardship is so difficult in bankruptcy court is that doing so requires the bankruptcy filer to move forward with what is known as an adversary proceeding, which means that they have to sue their original lenders. This is a much more challenging aspect of bankruptcy then is the case when medical or credit card bills get discharged, but Mr. Rosenberg saw no other way out of his situation and so he attempted it. In response, the judge in his case agreed that there was not a foreseeable way for him to pay his debts and took a stance that he was not willing to perpetuate “the myths” that student loan debt was never dischargeable.  Though this represented a victory for Mr. Rosenberg and is being closely watched by others struggling with student loan debt around the country, it is also important to note that the student loan lenders in the case have promised to appeal the judge’s ruling.

If you are struggling with debt and need information about filing for bankruptcy, we can help. Contact us today to set up an appointment for us to meet and discuss your case.