Family Circumstances Create Undue Hardship In BankruptcyThe 8th Circuit Federal Bankruptcy Appellate Panel upheld a bankruptcy court’s decision to discharge $300,000 in student loans. In the bankruptcy case of  In re Walker, 2010 WL 1407769 (8th Cir. BAP April 9, 2010), the bankruptcy court found that the debtor’s inability to work because of family circumstances justified a discharge of her student loans despite the debtor-husband’s purchase of “luxury” items.   According to the bankruptcy records, the debtor had accumulated the massive amounts of student loans pursing a bachelor’s degree and several postgraduate degrees.  But because she was raising five children, two of them suffering from autism, she was unable to keep consistent and substantial employment that would allow her to repay the student loans.

The bankruptcy court’s decision to forgive $300,000 in student loan debt due to family circumstances is a definite win for all student loan debtors. So many student loan debtors are forced to delay or completely forgo life events such as marriage and children because they believe that they owe too much student loan debt and need to pay it off first before moving forward with the other phases of their adult life.   The irony of it all is that if the debtor owed $300,000 in credit card debt there would be no need to fight in the appeals court for its bankruptcy discharge.  The discharge of credit card debt is almost automatic in Chapter 7 bankruptcy and even to some extent in Chapter 13 bankruptcy .  Fortunately, legislation is currently being considered that will make it easier for debtors to discharge private student loan debt which is more expensive and less flexible with repayment than federal student loans.