The Long Road to Student Loan Debt Relief - John T. Orcutt - Ninth Circuit Rules in Favor of Bankruptcy Petitioner Skip to main content

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The Long Road to Student Loan Debt Relief


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Oh, the times they are a’ changing when it comes to discharging student loan debt during a bankruptcy proceeding. While it’s true that student loans can be discharged, history has shown us that only a handful of people have successfully been able to obtain bankruptcy relief. On the bright side, a recent decision handed down by the United States Court of Appeals for the Ninth Circuit gives hope to anyone drowning in student loan debt and looking to discharge student loans during the bankruptcy process.

While many people chose to accept the idea that the student loan bubble had burst and there was no way to get help from a bankruptcy court, Mike Hedlund never gave in to that kind of thinking. Hedlund, a Willamette University law school graduate, fought a long and frustrating 10 year legal battle against his student loan lender who wasn’t willing to budge on the debt.

By the time Hedlund graduated from law school in 1997, he had racked up approximately $85,000 in federal student loans with the Pennsylvania Higher Education Assistance Agency and The Educational Resources Institute. In an attempt to pay back the loans on schedule, Hedlund made some serious budget cuts and life changes. He lived frugally and, even though he worked a full-time job, it was not enough to repay the massive debt and still maintain a minimal standard of living for his family.

In May, a panel of the Ninth Circuit Court of Appeals in Pasadena, California ruled in Hedlund's favor, granting him the ability to significantly lower the amount of his student loan debt through bankruptcy.

Amassing Large Student Loan Debts

Hedlund originally attended the University of Oregon where he obtained a Bachelor’s degree in business administration. After graduating, he went to law school and took out a number of Stafford federal student loans. By the time he graduated from Willamette, Hedlund owed two separate student loan companies and was struggling to pay either debt.

In an effort to repay the loans, Hedlund decided to reach out to the lenders in an attempt to negotiate. The first and smaller loan was from the Educational Resources Institute, which agreed to let Hedlund repay a total of $18,000 at $50 a month. The negotiation process with the Pennsylvania Higher Education Assistance Agency didn’t go as smoothly. In fact, the lender would not agree to a repayment plan that Hedlund felt he could even slightly manage, even after tightening his family budget to a bare minimum. In 2003, Hedlund filed in federal bankruptcy court, asking to have a large part of his remaining student loan discharged. Ten years later, he finally got the help he was looking for.

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On a side note, the Pennsylvania Higher Education Assistance Agency is supposed to make money that helps Pennsylvania students afford college and it currently holds $39 billion worth of student loan debt. The previous director chose to step down in 2007 due to a pesky little state audit that proved he had handed out millions of dollars in undisclosed bonuses to various board members, state representatives and senators. It’s curious that they would give massive bonuses to supervisors who already make a hefty salary, but then refuse to negotiate with a customer who is actually trying to find a way to fulfill his obligations.

When Your Income Just Isn’t Enough

If you’re wondering why a lawyer would need to have student loan debt discharged in bankruptcy, it’s important to point out that Hedlund’s dreams of practicing law never came to fruition. He failed the Oregon bar exam twice, then missed the third test after locking his keys in the car on his way to the examination. He chose not try again and took a job as a juvenile probation officer instead. Hedlund now makes $40,000 a year and could not afford to repay the massive debt, much less fast-track the student loan payments to catch up. Hedlund could barely afford to keep his family afloat, so it would have been nearly impossible for him to set aside extra money for even minor medical treatments, such as paying for toenail fungus removal.

The bankruptcy judge ruled in favor of Hedlund due to the fact that he was able to meet the three-factor Brunner test, proving why $53,000 of his debt should be forgiven. Hedlund was able to show:

  • He made a good faith effort to try and repay the student loan debt
  • He showed that he did not earn enough to repay the student loan debt and maintain a basic standard of living
  • He showed he was currently unable to earn substantially more and that trend as likely to continue

After it was all said and done, Hedland expressed happiness and relief that the bankruptcy process lowered his debt to $32,000 plus interest.

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More Information

While you may think that student loan lenders would be eager to work out an acceptable repayment plan with those people willing to pay, this case shows otherwise. It also shows that there are no “absolutes” when it comes to bankruptcy anymore. Today, it is finally possible to have student loan debt discharged and decreased under bankruptcy.

If you’re one of the thousands of North Carolinians struggling with student loan debt, now is the time to contact a trusted North Carolina bankruptcy attorney. You’ll find out just how bankruptcy laws apply to your situation and how filing a Chapter 7 or Chapter 13 can provide you with a fresh financial start.

Dedicated to helping residents of North Carolina find the best solutions to their debt problems. Don’t waste another day worrying about your debt. Call +1-919-646-2654 today to schedule a free initial consultation to discuss your bankruptcy options.

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