Bankruptcy

Student Loan ?Undue Hardship? Must Exist at Time of Filing Bankruptcy Case

By Craig Andresen, Minnesota Bankruptcy Attorney

A recent California bankruptcy court decision addressed the question of when the circumstances creating “undue hardship” must arise to be condidered relevant in determining the dischargeability of student loans.  This case, In re Zygarewicz, 2010 WL 710661 (Bky.E.D.Cal. Jan. 15, 2010), held that post-bankruptcy circumstances are not relevant in answering that question.

The debtor in Zygarewicz had filed chapter 7 bankruptcy in September 2005.  She received a discharge of debts a few months later.  Her student loan debt, originally $81,429, increased to over $146,000 by the time of the court’s decision.  She earned $5,500 in 2005 prior to filing bankruptcy; $20,009 in 2006; and $37,314 in 2007.

She was later injured in a car accident and her financial condition deteriorated.  Living on social security disability payments, the debtor asked the bankruptcy court to declare her student loans discharged under the undue hardship rule, nearly three years after her chapter case 7 was closed.

While recognizing that post-bankruptcy circumstances normally play a role in determining undue hardship, the court observed that in this case, the circumstances relied upon arose entirely post-bankruptcy.  The court was reluctant to grant bankruptcy debtors a “perpetual license” to come before the court asking for discharge of student loans whenever they suffer financial hardship.  Accordingly, the court denied the debtor’s request to discharge her student loans.

Full post as published by Bankruptcy Law Network on March 07, 2010 (boomark / email).