Many bankruptcy attorneys will advise a client that student loans can not be discharged in a Chapter 7 bankruptcy case. Strictly speaking, that is a correct statement of the law. However, as attorneys learn in law school, there is always an exception to the rule. Most of the time.
There is an exception to having your student loans wiped out (aka discharged). It is not a given result. It does require an attorney to help a debtor do it. Of course speaking of exceptions, there are a few bankruptcy appellate cases wherein the debtor represented himself. They are really few and far between though.
The simple explanation is that the debtor files a complaint within his own bankruptcy which seeks to have the judge rule that the student loans do not have to be paid back at all. Or the judge can instead reduce the total principal amount due on the contract.
Generally speaking, there is a presumption that overall life will be better in the future for the Chapter 7 debtor. So in the future, the debtor will make better decisions. He will make more money and save more money. He will not be overcome with debt again. Plus, the debtor’s emotional and physical health will get better or at least not go down.
These presumptions are important since they are factors that a bankruptcy judge will consider when determining whether to discharge the debtor’s student loans. It is up to the bankruptcy attorney to do the required legal research necessary to know what other things a judge will consider, the weight given to each of these items, and how the local judges think about these kinds of bankruptcy complaints.
Clearly the above presumptions of a better life are not necessarily true for every debtor. There may be permanent factors in a debtor’s life which will prevent them from making more money in the future, or making better decisions, or saving more money. If this is the case, then it may well be necessary for the debtor’s attorney to hire one or more medical professionals to examine the debtor and testify at trial.
An attorney gets to charge separately for handling these complaints in a bankruptcy case. Plus, there is no limit as to what he can charge his client as there is for the handling of the underlying bankruptcy case. Additionally, the medical professionals are definitely going to require their fees be paid up front.
The complaint is really a request to wipe out certain debts. It is not a lawsuit against a given company because they did the debtor wrong. Accordingly, the attorney will have no law in his favor in order to have his legal fees paid from the student loan company.
All of the above means that the debtor has to consider on one hand the total attorneys fees, the medical professionals fees, any deposition costs, etc. Then on the other hand consider the total amount of all student loans outstanding. Then look at their own health and the most likely future available to them. Given all of this, the debtor can make an informed decision whether to file such a complaint. Thus, it is a hard decision for anyone when considering filing for bankruptcy and possibly wiping out the student loans.