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Attorney Market for Discharging Student Loans

posted by Dalié Jiménez


On Friday, Tara Siegel Bernard reported in the New York Times that some bankruptcy judges think that the onerous Brunner standard for discharging student loans should change. Commenting on the article, reader "alma" writes:

As someone who recently filed for bankruptcy and has more than $100,000 in student loan debt, I can tell you why I did not try to get relief from student loans: I did not know it was an option. My lawyer simply told me that it was not possible to have student loans discharged. This article is the first I have even heard there was any method to do so ....

From the rest of the comments, this poster is not alone. Some of this may be explained by clients misunderstanding what's said (where the attorney means they don't think that this particular client will succeed in obtaining a discharge). But especially pre-2005 when the law was murkier, I do wonder about the level of advice given to filers.

Attempting to discharge student loans costs extra money, something bankruptcy clients are unlikely to have. Given the low numbers of attempts, it's unlikely any given bankruptcy attorney has any experience filing such a case. Doing it is no simple matter either; it's literally a federal case. I've only found one book out there detailing how to file an adversary proceeding to discharge student loans in bankruptcy. 

My own limited experience is that this is (unsurprisingly) quite hard. As part of a larger study, Jim GreinerLois 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. We just posted a paper on the philosophy behind our materials (and why we include cartoons like the one above). If we succeed, we hope that the materials we create will be useful to attorneys as well as pro se individuals. But there has to be a market before attorneys will use them.

What say you, Credit Slips readers, are bankruptcy attorneys offering student loan discharge services? Do clients want them? Can they afford them?

The cartoon credit goes to Hallie Pope. Hallie is the creator of "Blob" and other cartoons featured in the self-help materials in the Financial Distress Research Study.


I did a fair amount of student loan litigation in my bankruptcy practice. I practiced from 2008 - 2014. There are a couple of hurdles and some upshots to litigating dischargeability of student loans.
First, it's hard to find student loans that qualify. Most of my clients who had student loans were experiencing a temporary setback, not a long term inability to earn.
Second, it's expensive. The only way to get anything from the student lenders is to be trial ready. If you aren't requesting discovery, filing motions, etc. their lawyers will sense weakness and refuse to negotiate. You have to be willing to either eat lots of billables or be hyper-selective about clients.
Third, the lenders are upping their game. In 2009 - 2011, I did cases where the lenders would hire a random lawyer whose practice was 90% relief from stay motions. By 2012, they were hiring large regional firms.
One upshot is that if you put together a strong case, they will negotiate. The lenders don't want to start creating trial precedent - course of practice isn't binding authority but it might as well be - with judges in a district. They also recognize the value of something vs. nothing. In my district, the court would enter orders finding that a percentage of a debt was dischargeable.
Another upshot is that some of these lenders will either default or fail in discovery. I had a private lender walk away from $20k in student debt by defaulting on the summons and complaint. I've also had 3rd party collectors appear in bankruptcy and then fail to produce the note.
You absolutely must be on top of your noticing. The United States is entitled to notice. Make sure that the banks get perfect notice, because that gives you a leg to stand on for default.
An adversary proceeding will bring lenders to the table and get them to fast track alternatives to bankruptcy discharge. For example, I was able to get a total permanent disability approved in about two weeks in exchange for dropping an adversary proceeding.

The tension is that the stronger the case for meeting the Brunner test, the less likely the debtor can pay for the adversary case.

And then, until lately, most trial judges have adhered religiously to Brunner as if they had no ability or interest in tempering the test.

Hurray for Judge Pappas and his concurence in Roth pointing out how different the student loan regs were when Brunner was decided.

People that are having trouble scraping together $2000 to $3000 for a Chapter 7 bankruptcy generally don't have the much to file a lawsuit against and well funded opponent. Unless the attorney is working for free or the debtor has a friend or relative to pay legal fees. you won't see a lot of these cases litigated.

There are often more cost effective ways to reduce or eliminate student loan debts such as income-based payment plans or administrative discharges.

I think the consumers who were advised by their attorney that student loans cannot be discharged should sue the attorney for mal-practice.

I've discharged two student loans in bankruptcy. One went to trial and other won on summary judgment. Pay plans work well for litigation and fee capping makes a difference too. I do see family helping some folks. I say, where there is a will, there is a way!

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