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Until recently, if you asked most bankruptcy attorneys, they would tell you it was extremely difficult if not impossible to get rid of student loan debt in a Chapter 7 bankruptcy.

However, in a recent landmark ruling, the Chief Judge of the New York Southern District (“NYSD”) held that a student loan debtor had proven that he would suffer an undue hardship if not allowed to discharge his student debt. 

Although this opinion was not out of the Florida Middle District, or any Florida Court for that matter, the NYSD Bankruptcy Court is very influential and certainly the hope among debtor bankruptcy attorneys is that this decision will influence Florida judges.

  1. The court found that the debtor satisfied each requirement for proving “undue hardship” under governing law: If forced to repay the loans, can the debtor maintain a “minimal” standard of living based on current income and expenses? The court found it dispositive that the debtor reported a negative monthly income and his loan of approximately $220,000 was due and payable. The debtor “has successfully proven that he cannot immediately pay his Student Loan in full based on his current income.”
  2. Do additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period? Because the repayment period had ended and the loan was due in full, the court found that this prong was satisfied. The court held that the debtor need not show that his inability to pay was “going to exist forever” or was not created by “choice.”
  3. Did the debtor make good faith efforts to repay the loan? The court emphasized that the debtor missed few payments over many years, made payments even when his account was in forbearance, and actively communicated with the loan servicer.

Applying the above factors, it may be possible for Florida residents to have students loans removed in a Chapter 7 bankruptcy.

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