For millions of student loan debt, bankruptcy is not an easy solution
“It is an untouchable subject,” she said.
Rumors and rules
The transformation of bankruptcy rules began in 1976, with unfounded rumors.
A handful of lawmakers have claimed to have heard of a parade of young doctors and lawyers trying to play with the system and get rid of their debts while embarking on lucrative careers. Legislators hardened the rules, largely preventing borrowers from requesting a waiver within five years of graduation. The rules only got tougher over the next three decades.
Borrowers must prove that their student loans constitute “undue hardship” – a standard interpreted differently, depending on where you live. Some court circuits, including those in Nebraska, where DeLaet has testified, ask the judge to consider a “set of circumstances” for the debtor and make a decision.
Other jurisdictions employ a less flexible standard, the Brunner test, from the name of the case that established it. Judges must answer three questions in the affirmative to pay off the debt. First, did the debtor make a good faith effort to repay the loans? Second, is the debtor unable to maintain a minimum standard of living while making payments? And finally, is the debtor’s situation likely to continue?
But even jurisdictions that use the Brunner test apply it differently. Some require the judge to find that borrowers have a “certainty of desperation” in repaying their debt. Other jurisdictions do not.
Here, the Johnsons may have enjoyed good geographic luck.
“Virtual life bondage”
Lawyers for the Educational Credit Management Corporation – a nonprofit that collects delinquent loans on behalf of the federal government – examined how the Johnsons spent their monthly income of $ 2,100.
Each expense was reviewed, including Ms Raney-Johnson’s monthly union dues of $ 35, her $ 100 pension contribution and $ 215 to pay off loans from her pension plan. None, according to the association’s lawyers, was necessary to maintain a “minimum standard of living”.