Could This Bankruptcy Case Set the Precedent?

: Chris Lee Law Firm

  Filed under: News

judge hammerCollege graduates across the nation know how difficult it is to discharge student loan debt through bankruptcy. Qualifying to have your student loan debt discharged is so difficult that it’s actually become a bankruptcy myth that student loan debt is exempt from bankruptcies altogether. However, the case of Michael Hedlund may have set a new precedent when a 9th U.S. Circuit Court of Appeals ruled to partially discharge his student loan debt.

Are Changes Coming to Student Loan Debt?

Hedlund’s student loan debt bankruptcy case lasted 10 years in the courtroom before finally being resolved. Since graduating from Williamette Law School, Hedlund has since become a juvenile counselor and enjoys a peaceful life with his wife and child. However, when his $85,000 in student loan debt became too much for Hedlund and his family to bear, his bankruptcy case headed to court, potentially changing the playing field for borrowers across the nation.

To normally discharge student loan debt through bankruptcy, borrowers must prove undue hardship by passing what is known as the Brunner standard. In order to pass this standard, the borrower must prove:

Paying back the student loan debt would prevent maintaining a minimal standard of living.
It is unlikely that financial circumstances are going to improve.
The borrower has shown a good faith effort to repay the student loan debt before filing for bankruptcy.

What makes Hedlund’s case unique is that he was able to settle with one of his creditors after he filed for bankruptcy. Furthermore, the 9th U.S. Circuit Court held reasonable – some would say lenient – standards when it came to Hedlund’s standard of living. For instance, Hedlund and his family have two cell phones, a car, cable, and children’s haircuts. Being able to afford these things would typically describe a standard of living that is above “minimal,” but the court rejected the notion that Hedlund and his wife should find other jobs and work longer hours to afford these items, as well as student loan debt. Could the bankruptcy tides be turning for those buried under student loans?

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