Student Loans in Ch. 13 Plans

I read an article (linked below) about a case recently argued by a colleague of mine which prompted my interest. T discussed the “fairness” factor that is so prominent in courts of equity, such as Bankruptcy Court. There’s a significant amount of work that goes into preparing an equitable argument, specifically regarding student loans, and especially because the traditional treatment of those loans is somewhat unfair.

Student loans are not dischargeable in bankruptcies without filing an additional lawsuit against the lender to determine its dischargeability. The burden of proof is quite high. The Debtor must demonstrate that repayment of the loan is an undue hardship, which basically equates to not only proving that the Debtor cannot pay the loan NOW, but will also remain unable to pay the loan PERIOD. You’ve virtually got to be in a coma to get one of these discharged.

That being said, it’s exciting to see discriminatory treatment in Chapter 13 cases being ruled as “fair.” Because it really IS fair. Student loans aren’t going anywhere in the near future and with sky-high tuition rates over the past decade, they’re becoming an increasing burden on middle class households struggling to educate their kids.

The plan in this case did not seek to discharge the student loans. It actually sought to pay them and to pay them first. It’s nice to see the law working for the little guy instead of against him these days. So rarely do we see the victory of the underdog anymore, but the court did the right thing here by allowing responsible people a legal way to improve their situation. To read the full opinion, see Judge Berger’s opinion¬†In re Engen , 2016 BL 412485, Bankr. D. Kan., No. Chapter 13, 12/12/16.

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