Restructuring student loans

Posted on March 23, 2010 by Ed Poll

In the only case decided today, in United Student Aid Funds, Inc. v. Espinosa, (No. 08-1134) the U.S. Supreme Court allowed  the restructuring of a student loan. I didn't think such loans could be part of bankruptcy proceedings, but apparently I was in error.

My question now is:  How many more students/former students will be pushed into bankruptcy just to reorganize these normally very large debts?

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Mike G - March 24, 2010 7:44 AM

From the text of the decision:

"A debtor may obtain a discharge of government-sponsored student loan debts only if failure to discharge that debt would impose an “undue hardship” on the debtor and his dependents. §§523(a)(8); 1328. Bankruptcy courts must make this undue hardship determination in an adversary pro- ceding, see Fed. Rule Bkrtcy. Proc. 7001(6), which the party seeking the determination must initiate by serving a summons and complaint on his adversary, see Rules 7003, 7004, 7008."

Discharge is not impossible, just very, very hard.

—Mike

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