A reader contacted me to share his story of dealing with his unmanageable student loans through bankruptcy. Just recently Ive written two articles that showed how people have fought the battle against their student loan companies and the bankruptcy court agreed to eliminate their debt. Read this and this.
The cases of consumers making there case with the bankruptcy court are coming more frequently now. And while Ive always been a big proponent of people hiring smart attorneys to help them with their bankruptcy, these cases reinforce some of the research by Jason Iuliano, JD See How to Really Discharge Your Student Loans in Bankruptcy. Many Can. But Never Try.
In 2013 Iuliano said, 99.9 percent of student loan debtors in bankruptcy never attempt to get a discharge and In fact, debtors without attorneys were just as likely to receive hardship discharges of their student loan debt as were those debtors who had counsel.
Ron Nichols reached out to me to share his story of dealing with his student loans without an attorney to file the necessary second step, the Adversary Proceeding.
Nichols said, I just want to share my story about what happened to me in regards to student loans and bankruptcy. Hopefully, you can share it with your many readers.
My wife and I co-signed our three childrens student loans to the tune of $254,000 (about $1,900 a month). At the time, we were healthy and prepared to back them up if they were unable to.
Two of our children had difficulties in securing jobs–so they couldnt afford the payments to Sallie Mae (SM) and National Collegiate Trust (NCT). The loans we co-signed were all private ones ($254,000).
My wife had to retire on disability and I was medically retired from Air Force Special Ops due to a brain tumor. Our incomes dropped so bad that we had to file for chapter 7 bankruptcy (BK). Before filing that, we were hit with a couple of lawsuits because the vast majority of the loans were in default.
We were so stressed out with the constant phone calls and threats that we didnt know what to do. We answered every call and tried to workout a payment agreement with them. They were having none of that. This went on for three years before the lawsuits. We always heard that student loans couldnt be discharged in bankruptcy. I was fully aware that they couldnt garnish our income or levy our bank accounts because we receive Social Security and Veterans Administration disability benefits only. As stated above, all the loans are private so we are protected from garnishments. Our house is under-water too. Thats why I found it hard to believe that SM and NCT wouldnt negotiate with us.
Here is what I did. I couldnt afford an attorney so I researched tons of websites to see how to go about it Pro Se (representing yourself). When I filed bankruptcy, we immediately got relief from phone calls from all creditors including SM and NCT for about two years. That was worth it just in itself. We then filed an Adversary Proceeding with our bankruptcy which is basically suing the student loan lenders for relief due to undue financial hardship. Sallie Mae told the court our $30,000 loan with them was completely discharged at the first Status Conference!
After going back and forth with Status Conferences for about two years with NCT, they got scared that they would lose and offered us a settlement a week before the Adversary Trial. Their offer was to settle all our loans with them (15 of them), for $80,000 at $195 a month with 0% interest! The original loan balance was $224,000. The peace of mind this gave us was tremendous. We can finally get on with our lives without worrying about the crushing stress of student loans. I hope more people can find solutions to their student loan dilemma in some way.
Not long ago a few legal educators said they were, part of a larger study, Jim Greiner, Lois Lupica, a couple of dozen students, and I have been working to create a DIY guide to a no-asset Chapter 7 bankruptcy guide, complete with a module on representing yourself through an adversary proceeding to discharge student loans. Dale Jimenez, one of the lawyers involved, said, If we succeed, we hope that the materials we create will be useful to attorneys as well as pro se individuals.
If I look into my crystal ball I see more people who could get a total or substantial bankruptcy discharge of their student loan debt, like Nichols did.
To help this movement, the definition of what constitutes an undue hardship, the magic words needed for the discharge, have been recently clarified by the Department of Education. See Department of Education Reaches Decision About Student Loans and Bankruptcy.
For me, that adoption of undue hardship by the Department of Education is a green light for those that meet the criteria defined here.
In that recent announcement by the Department of Education the government got behind the undue hardship argument for federal loans. In fact to be crystal clear, what the government said was, If this consideration leads to the conclusion that repayment would impose an undue hardship, the holder should consent to, or not oppose the discharge, as authorized by the governing statute and regulations.
If consumers cant afford a bankruptcy attorney to take on their case, maybe they might just have to file an Adversary Proceeding themselves and fight the good fight. Not all consumers would be willing to adopt that approach but recent cases confirm it can be a successful strategy to crawl out from under life crushing student loan debt.
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This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.