Rare Circumstances Move Bankruptcy Court To Discharge Student Loans

January 12th, 2009 by Reed Allmand

In the case of Mabry v. U.S. De­partment of Education National Payment Center the bankruptcy court discharged the student loans of a debtor because they thought it unlikely that the debtor would ever have meaningful employment and that he would never be able to repay his student loans.

The debtor who is currently “penniless, homeless, unemployed and receiving food stamps” graduated from the Ivy League college Brown University in 1982 and enrolled in law school at the University of Texas but was later kicked out. After serving prison time and facing over $80,000 in student loans, the debtor filed for bankruptcy. According to the bankruptcy court records, the debtor has worked as a waiter, bartender and social worker making only as much as $24,928 in one year.

This is an excellent example of what it currently takes to make student loans dischargeable in bankruptcy. This debtor obviously has been unable to make significant income despite his college education and the bankruptcy court saw that the student loan debt would probably make it nearly impossible for the debtor to get on his feet. But, it should not take a debtor spending time in jail and living on the streets to receive a bankruptcy discharge of their student loans. Almost every other type of debt is dischargeable in bankruptcy, even debts that are incurred because of foolish financial decisions. Our society has agreed that getting an education is never a foolish idea. Why punish those who take out student loans and then find that they are unable to repay them? The bankruptcy court needs to give debtors with student loans the same amount of consideration as debtors with credit card debt.