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Woman receives rare student loan discharge in bankruptcy case

For Michigan consumers who struggle with high levels of debt, bankruptcy is often the toughest financial decision they make. When debts far outpace the borrower's ability to repay, a personal bankruptcy filing can provide the relief needed to regain financial stability. However, many people are surprised to learn that student loans are among the types of debt that are ineligible for discharge during bankruptcy proceedings.

However, the U.S. Bankruptcy Code does provide for the discharge of student loan debt in circumstances where the financial obligation imposed by the debt poses 'undue hardship' on the borrower or their dependents. Cases that are successful in obtaining such discharge are incredibly rare. However, one woman recently received a discharge of the $56,299 in student loan debt that has accrued since she borrowed $16,900 approximately 25 years ago.

The 64-year-old woman approached the bankruptcy court having been laid off from her job on an assembly line, for which she earned $11 per hour. She did not complete the college education that she borrowed funding for, and her job prospects are limited. In granting the discharge, the judge made note of the fact that when the woman received $25,000 from her parents, she used the money to support them in their elder years.

For Michigan borrowers who feel that their circumstances may warrant a similar discharge, they would be wise to consult a bankruptcy attorney before approaching a bankruptcy court with their request. The issue of discharging student loan debt has resulted in a number of rulings in various appeals cases, and there are differing interpretations of what constitutes 'undue hardship' on the part of the borrower. A successful discharge will require a high level of legal savvy and knowledge of the intricacies of bankruptcy proceedings.

Source: New York Law Journal, "Rare Discharge Is Granted in Case of Student Loan Debt," John Caher, July 17, 2012

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