Posted on Nov 27, 2012

Discharging student loan debt in bankruptcy is very difficult, but people do succeed. In the case of Shaffer v. U.S Department of Education, a young woman in her mid thirties had obtained a degree in psychology in 2002. Afterward, she attended a community college off and on, then enrolled at the Palmer College of Chiropractic Medicine, but left after thirteen months after concluding that her student loan debt was insurmountable.

She Tried Everything

By this time she had $204,525.00 in student loan debt, suffered from depression, eating disorders, and anxiety. In 2008 she commenced employment at a women’s health clinic, but left after a year. She then worked as an accounts receivable specialist at a different employer, but left after depression caused her to take two leaves of absence, believing she was about to be fired.

A variety of temporary jobs, followed. She cashed in her pension, relied on the support of her family, and collected disability. Finally, she filed bankruptcy in 2010, and then began employment in the radiation department at the University of Iowa, taking home about $1,600.00 per month. She asked the bankruptcy court to discharge her student loan debt and succeeded. The lender appealed.

The federal appeals court upheld the bankruptcy court’s finding, noting that after all of her monthly living expenses were paid, she had less than $100.00 remaining to pay her student loans. This was “minimal” and not enough to make progress toward paying off the student loans.

Lender Says: She Should Have Tried More

Interestingly enough, the lender argued that the woman's income limitations were self-imposed, because she could have stayed in chiropractic school. Eventually, she could have earned a much higher salary than what she was receiving. This argument was rejected by the appeals court which observed that she had good reasons to leave chiropractic school: she wanted to avoid additional student loan debt!

The take-away here is that not completing your education because you cannot afford the mounting debt to do so, should not be held against you.

If you live in southern New Jersey and are struggling with payment on federal student loan debt, I may be able to be of assistance. Just download this questionnaire, fill it out, and then fax it to me at 856-686-9911 or e-mail it to me. I will then review it and contact you to discuss options and possible representation.

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