Current Bankruptcy Laws Very Rarely Erases Student Loan Debts.

Submitted by Stafford Patterson on Tue, 02/22/2022 - 2:19pm

Current Bankruptcy Laws Very Rarely Erases Student Loan Debts.

WASHINGTON – In January, Ryan Wolfson pulled off the rare feat of wiping out nearly $100,000 in student loans through bankruptcy.

Wolfson, 35, accumulated the debt earning a business degree from Penn State University in 2010. But he filed for bankruptcy in 2019 after hundreds of career job interviews failed to yield any offers. He scraped by driving for Uber, GrubHub and DoorDash, but after crashing his car while suffering an epileptic seizure, he gave up his apartment, moved in with his father and asked the court to eliminate his student loans.

Days after a bankruptcy judge ruled in Wolfson's favor to erase his loans, the Biden administration filed a notice of appeal to U.S. District Court, putting up a final fight without explaining why. When advocates for borrowers of student loans griped and Wolfson's case generated news coverage, the Department of Education quickly dropped the appeal Feb. 4, saying in a tweet it would review future cases. 

“At that moment, I was really, really upset,” Wolfson told USA TODAY. “I was like, ‘Why are they doing this to me again?’”

Four days after dropping Wolfson's appeal, the administration filed a notice of appeal in a similar case. Monique Wheat, a single mother of three from Alabama, represented herself in bankruptcy court, where a judge ruled her $111,000 in student debt would be forgiven. At one point during the case, Justice Department lawyers suggested her then-13-year-old son might be able to get a job at 14 to add to the household income. The government dropped its appeal Feb. 11 – again, without explanation.

Despite President Joe Biden's campaign vow to ease the burden on people who owe student loans, federal lawyers across the U.S. continue to challenge bankruptcy rulings for some of the most desperate borrowers, who meet a high legal standard to have their debt forgiven. The challenges persist even though Biden administration officials acknowledge the legal hurdles to wipe out debt are too strict in the first place.

The scope of the problem is staggering. About 250,000 people with student loans declare bankruptcy each year. But only about 1 in 1,000  are able to wipe out education debt, which requires proof the debt imposes an "undue hardship." The legal hurdles discourage many student borrowers from even trying.

Ed Boltz, a bankruptcy lawyer in Durham, N.C.

"It’s crushing too many people right now."

Cases like Wolfson's and Wheat's also reveal Biden's complicated history with student loans. 

In his 36 years in the Senate, Biden repeatedly joined big majorities in Congress making it harder to erase student loans through bankruptcy. But Biden also pledged relief for student borrowers during the 2020 campaign, including rolling back some of the bankruptcy laws he helped pass.

Bankruptcy attorneys and judges, student loan advocates and senior Democratic lawmakers say the bankruptcy standards for student loans – which are higher than other forms of debt – are too burdensome.

"It’s crushing too many people right now," said Ed Boltz, a bankruptcy lawyer in Durham, N.C., told USA TODAY.

If you are frustrated with your honest debts and are considering bankruptcy, contact the law offices of John T. Orcutt for a free consultation today!

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