Bankrupt Your Student Loans
and other discharge strategy
Chuck Stewart, Ph.D.

Chuck Stewart, Ph.D.
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Successfully bankrupted $72,000 in student loans.

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New Success Stories - Growing list of recent successful student loan discharge cases.

The past few years, more and more courts are finding in favor of discharging student loans. Each of these stories shows the trend in court thinking. When available, the court document is given. Use some of the wording found in these cases in your own adversary filing.

  1. In re Rosenberg, Case No. 18-35379 (Bankr. S.D.N.Y. Jan. 7, 2020)

    Comment: This is a very important decision. As of this writing, ECMC has since sought and obtained leave to appeal the interlocutory portion of the order denying its summary judgment motion. In its notice of appeal, ECMC has indicated its election to have the U.S. District Court, rather than the Bankruptcy Appellate Panel, hear the appeal.

    No wonder DOE wants this case overturned. The judge attempted to scrape the crud that has built up around the adversary process. At the same time Judge Morris issued the judgement, she issued General Order M-536 adopting the “Student Loan Mediation Before Litigation Program Procedures” (SLM program), a “uniform, comprehensive, court-supervised student loan mediation program” intended to “facilitate consensual resolutions of student loan issues for the benefit of debtors and lenders.” While the SLM program is not mandatory, and neither debtors nor lenders can be compelled to participate, the adoption of this new resource suggests that relief for struggling student loan borrowers may become less of an “impossibility.”

    Finally, the tactic that infuriated ECMC the most was Judge Morris interpretation of the second prong. It is not known if any other adversary proceeding has ever noticed this approach. Once a loan goes into default, the entire amount become due payable immediately. The repayment period is over. Thus, if the loan were to last ten years (like the standard repayment plans) or twenty to twenty-five years (like the income sensitive repayment plans), the time for repayment under default is eliminated and the full loan becomes due immediately. The second prong states that “this state of affairs is likely to persist for a significant portion of the repayment period of the student loans.” Since filing for bankruptcy indicates that the debtor is in dire financial straits and it has lasted during the repayment period (now over), the second prong is satisfied. This means that anyone filing an adversary who cannot maintain a minimal standard of living and has defaulted on his/her student loans will automatically meet the requirements of the second prong. This interpretation will put all student loans that are in default into play for bankruptcy consideration. This is something DOE dreads.

    See: In re Rosenberg v NY State Higher Educ Services Corp.
  2. Metz v. Navient Education Loan Corp and Educational Credit Management Corporation, Case No. 12-13120 Adv. No. 17-5119, 589 B.R. 750 (2018)

    Comment: DOE keeps pushing IDR plans as the panacea to all debtors who cannot service their student loan debt. Luckily, the judge in Metz rejected that idea and required payments made on student loans to have an impact on paying down the principal; not just service an ever-increasing debt.

    See: Mertz v. Navient
  3. In re Murray, 563 B.R. 52, 60 (Bankr. D. Kan. 2016), aff’d sub nom. Educ. Credit Mgmt. Corp. v. Murray, No. 16-2838, 2017 WL 4222980 (D. Kan. Sept. 22, 2017).

    Comment: ECMC proposed the Murray’s go onto one of the IDR plans. But the judge noticed that the monthly rate would amount to less than half of the monthly accruing interest. The Murray’s debt would grow to over a half-million dollars over the twenty-year repayment period. And, at the end of the period, the unpaid loan would be forgiven but liable for an enormous tax bill by the IRS.

    See In re Murray.
  4. Fern v FedLoan Servicing, U.S. Department of Education, et al., U.S. Bankruptcy Court, Northern District of Iowa, June 22, 2016, Adversary No. 14-09027.

    Comment: DOE argued that debtor should be on ICR plan and that anyone can afford $0 monthly payments. Court found that placing plaintiff on ICR would pose an undue burden due to the mounting indebtedness over 20-25 years and her inability to repay when she reached age 55 or 60 (she was 35 years old at the time of filing).

    See: Fern v. Fedloan Servicing
  5. McDowell v ECMC (May, 2016) United States Bankruptcy Court, D. Idaho., Bankruptcy Case No. 10–40845–JDPAdv. Proceeding No. 14–08005–JDP
  6. McCaskill v. Navient Solutions, Inc., No. 8:15-cv-1559-T-33TBM (M.D. Fla. April 6, 2016) Navient Solutions, Inc. and Student Assistance Corporation (SAC) got sanctioned by a federal district court for violating the Telephone Consumer Protection Act. McCaskill is entitled to $500 for each violation, which adds up to $363,500.
  7. Robert Murphy v ECMC (2016) After appeal before the 1st Circuit. ECMC agreed to a complete discharge. ECMC had previously won in the two lower courts.
  8. Precht v. United States Department of Education, AD PRO 15-01167-RGM (Bankr. E.D. Va. Feb. 11, 2016 (Consent Order).
  9. Barrett v. U.S. Department of Education Loan Servicing Center, et al. (In re Kevin F. Barrett), 26 CBN 374, 2016 WL 549377 (Bankr. N.D. Cal. 2/10/16)

    See: Kevin Francis Barrett, Website July 13, 2016.pdf
  10. Abney v. U.S. Dept. of Educ., 540 B.R. 681 (Bankr. W.D. Mo. 2015).

    Comments: Under the Eight Circuit’s totality of the circumstances test, debtor proved by a preponderance of the evidence that not discharging his student loans under 11 U.S.C.S. § 523(a)(8) would impose an undue hardship on him and his dependents; [2]-Debtor was maximizing his earnings potential, and his future financial resources were not likely to improve significantly; [3]-He had essentially no savings for retirement; [4]-His expenses were exceptionally modest; [5]-He had good and sufficient reasons for filing bankruptcy apart from his student loans; [6]-He made every humanly-possible effort to pay his child support and student loans, to the point of riding a bicycle to work and living out of his employers' trucks and homeless shelters; [7]-Availability of the Income-Based Repayment Program (IBRP) was of no help to his current or future situation.

    See: Abney v. U.S. Dept. of Education
  11. Acosta-Conniff v. ECMC, Case No. 12-31448-WRS, 2015 Bankr. LEXIS 937 (M.D. Ala. March 25, 2015).
  12. DaLaet v, National Collegiate Trust, 2015, WL 850629 (Bank. D. Neb February 15, 2015).

    See: DaLaet v, National Collegiate Trust
  13. In re: George A. Johnson and Melanie Raney-Johnson, Debtors. George A. Johnson and Melanie Raney-Johnson, Plaintiffs, v. Sallie Mae, Inc., and Educational Credit Management Corporation, Defendants, Case No. 11-23108, Adv. No. 11-6250,United States Bankruptcy Court for The District of Kansas, 2015, Bankr. LEXIS 525.
  14. In Re Nightingale No. 13-10834, Adversary No. 13-02060. United States Bankruptcy Court, M.D. North Carolina, Greensboro Division. April 20, 2015.
  15. Kelly v. ECMC, et al. (“Kelly I”), Adv. No. 2:10-ap-01681, judgment (Bankr. W.D. Wash., Jul. 18, 2011); ECMC, et al. v. Kelly (“Kelly II”), No. 2:11-cv-01263, order (W.D. Wash., Apr. 20, 2012); Kelly v. Sallie Mae, et al. (“Kelly III”), No. 12-35377, slip op. (9th Cir., Feb. 27, 2015).
  16. Conway v National Collegiate Trust (2014) 8th Circuit.

    See: Conway v National Collegiate Trust
  17. In re Lamento, 520 B.R. 667 (Bkrtcy. N.D. Ohio 2014).

    See: Lamento v US Dept. of Education
  18. Blanchard v. New Hampshire Higher Education Assistance Foundation, U. S. Bankruptcy Court District of New Hampshire, Adv. No. 13-1038-JMD, August 14, 2014.
  19. In re Roth, 490 B.R. 908 (9th Cir. BAP 2013).

    Comment: Note, in Roth v Educational Management Corporation the Bankruptcy appellate Panel of the Ninth Circuit Court of Appeals concluded that Roth had complied with the Brunner test’s third prong requiring that debtors show good faith with regard to their student loan repayment obligations, even though Roth had never made a single voluntary payment in over a period of approximately 20 years. The court concluded that Roth had shown good faith simply by living frugally and attempting to maximize her income over the years. See 490 B.R. 908, 292 Ed. Law Rep. 944 (9th Cir. BAP 2013).

    See: Roth v Educ Credit Management Corp.
  20. Krieger v. Educational Credit Management Corporation, 713 F.3d 882 (6th Cir. 2013).
  21. Hedlund v. The Educ. Resources Inst., Inc. & Pa. Higher Educ. Assistance Agency, 718 F.3d 848 (9th Cir. 2013).

    See: Hedlund v. The Educ. Resources Inst
  22. In Re Wolfe Case No. 8:11-BK-10760-MGW. Adv. Pro. No. 8:11-AP-638-KRM, 501 B.R. 426 (2013), Florida.
  23. Shaffer v. U.S. Department of Education, 481 B.R. 15 (8th Cir. BAP 2012)
  24. In re Scott, 417 B.R. 623 (Bankr. W.D. Wash., 2009).
  25. Christian D. MENDOZA, Chapter 7, Debtor. Christian D. Mendoza, Plaintiff, Educational Credit Management Corporation; Hemar Insurance Corporation of America, Defendants. Case No.-01-53238-MM. Adversary No. 01-5283. United States Bankruptcy Court, N.D. California. June 20, 2007
  26. Carnduff v Department of Education BAP No. WW-06-1200-MoSPa (2007) United States Bankruptcy Appellate Panel of the Ninth Circuit

    Comment: A young married couple with over $350,000 in student loans had the debt discharged due to the impossibility of ever servicing such a large debt.

    See: Carnduff v DOE
  27. In re Lorna Nys, 446 F.3d 938 (9th Cir. 2006).

    Comment: Court developed a list of “additional circumstances” under the second prong of the Brunner test that would qualify to determine undue hardship and that proving “exceptional circumstances” was unnecessary.

    See: Lorna Nys

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