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A bankruptcy court recently granted a debtor’s request to discharge his student loan debt in a Chapter 7 proceeding. Federal bankruptcy law prohibits discharge of student loan debt except in extremely limited circumstances. The court found that repayment of the full student loan balance would put an “undue hardship” on the debtor because of his ongoing struggles with mental illness. In re Ablavsky, No. 12-18167, memorandum (Bankr. D. Mass., Jan. 23, 2014).

Certain debts are not eligible for discharge in bankruptcy, including student loans. 11 U.S.C. § 523(a)(8). The only exception is if a debtor can show an “undue hardship” on them or their dependents. The statute does not define “undue hardship,” but many courts have adopted a three-part test established in Brunner v. New York State Higher Educ. Services, 831 F.2d 395, 396 (2nd Cir. 1987). The debtor must establish, by a preponderance of evidence, the following: (1) the debtor would not be able, at their present income and expense levels, to maintain a “minimal” living standard while repaying the debt; (2) “additional circumstances” demonstrate that this situation will continue for much of the repayment period; and (3) the debtor has attempted in good faith to pay the debt.

The debtor in Ablavsky sought to discharge nearly $83,000 in student loan debt used for law school. He was diagnosed with bipolar disorder, generalized anxiety disorder, and panic disorder at the age of eighteen, and subsequently received diagnoses of post-traumatic stress disorder and right hemisphere syndrome. He argued to the court that his mental health condition prevents him from maintaining employment that would enable him to pay the student loan debt.

By the time of his bankruptcy filing, the debtor was no longer able to obtain work as a lawyer. After his admission to the bar in Massachusetts in 2010, according to the court, the debtor “misappropriated” a court file to hinder a criminal prosecution against his client. This occurred during a manic episode, and he testified that he did not feel in control of himself at the time. He pled guilty to tampering with an official record in 2011, and he was suspended indefinitely from the practice of law as a result. The debtor’s treating psychiatrist testified regarding his mental state, his need for regular medical monitoring, and his inability to find employment.

The court, considering the “totality of the circumstances” of the case and applying the Brunner test, found that the debtor had established the existence of undue hardship. The debtor was unable to work at anything other than part-time, minimum wage jobs, which left him unable to survive while paying the student loan debt. Because of his health condition, this situation was likely to continue for the foreseeable future. It also found that he had made a good-faith effort to pay the debt. The court rejected the creditors’ argument that granting a discharge was “rewarding criminal behavior,” finding that it was a result of his mental illness

The bankruptcy system can offer relief to people whose required debt payments exceed their what they can pay from their available income. Bankruptcy attorney Devin Sawdayi has helped people in the Los Angeles area through the bankruptcy process for over sixteen years. To schedule a free and confidential consultation to see how we can help you, please contact us today online or at (310) 475-939.

More Blog Posts:

Supreme Court Decision Affirming Discharge of Student Loan Debt Prompts Possible Revisions to Chapter 13 Procedures, Los Angeles Bankruptcy Lawyer Blawg, January 12, 2014

With Interest Rates on Many Loans Set to Double Soon, The Dischargeability of Student Loans in Bankruptcy is a Crucial Issue for Future College Students, Los Angeles Bankruptcy Lawyer Blawg, September 23, 2013

Ninth Circuit Allows Partial Discharge of Student Loan Debt, Los Angeles Bankruptcy Lawyer Blawg, July 12, 2013