Margaret eliminated $230,000 of student loan debt in bankruptcy. This is her story.
Margaret took on student loans to pay for her undergraduate, law, and master’s degrees. When she finished her studies in 1993, the principal balance she owed was just $48,000.
Margaret was able to start making regular payments on her student loans right away when she was hired as an attorney right after graduating. But she was laid off due to budget cuts after three years there.
Right after she was laid off, Margaret had her first child and was unable to seek employment for several months. Then her husband got a new job out of state and their growing family -- and her law practice -- had to move. She transferred her law license right away but could not find any legal work in their new state. Then when her husband then lost his job, they moved yet again to a new state and her fruitless job search started all over again.
Eventually, Margaret accepted a part-time teaching position out of desperation in order to feed (now two) young children. When she lost that job in 2008 at the brink of the national financial crisis, Margaret was thrust yet again into a tedious job search.
This time, Margaret’s job search was even less successful. She applied for hundreds of jobs, including jobs in the legal field and jobs unrelated to law, in several large cities. Despite her eagerness to work and support herself and her family of four, Margaret has received only a few interviews and no offers of employment since 2008. Her entire family depends on her husband’s income from his work as a dishwasher, which leaves no money to pay off Margaret’s student loans. Since she made her first payments toward the $48,000 loan in 1993, Margaret’s loan has accumulated interest and snowballed into a massive student loan totalling over $230,000.
Without any employment prospects for Margaret, her family continued to somersault toward financial ruin. Margaret and her husband declared chapter 7 bankruptcy in 2016. Their attorney knew that they needed relief from Margaret’s crippling student loan debt and advised filing an adversary proceeding seeking discharge for the full $230,000 Margaret still owed, arguing that payment would pose an “undue hardship” to Margaret and her family.
Luckily, the bankruptcy judge determined that Margaret passed the “undue hardship” test used in Margaret’s home state in the 8th circuit, the “totality of the circumstances” test:
- Margaret had no job and had been diligently job searching for years. Her past job as an attorney was more than 20 years ago, which makes it unlikely she will ever find a similar job (and therefore salary) in the future.
- Margaret and her family had modest monthly living expenses that were not “unreasonable or unnecessary.”
- She had made “good-faith efforts” to repay her loans by making payments when she was able and requesting deferments when she could not.
Based on these findings, the judge determined that Margaret demonstrated “undue hardship.” Margaret got a full discharge of her $230,000 student loan.
At Lexria, our mission is to make financial justice accessible. We’re starting with student loan discharge for people who have filed or are considering filing bankruptcy — people like Sandra.
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In Case Chronicles, we tell the stories of people who received student loan debt relief via adversary proceedings.
All information in Case Chronicles is from the public record, but we have changed any names to provide some privacy.