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  • Writer's pictureWandro, Kanne, & Lalor, PC

Student Loan Cancellation in Bankruptcy - When is a Hardship a Hardship?

From the Desk of Austin Maas

Under the Bankruptcy Code, student loans are only subject to discharge in bankruptcy where specific circumstances show repayment would constitute an undue hardship on the debtor or the debtor’s dependents. Recently, two opinions from both the Southern and Northern District of Iowa Bankruptcy Courts have made proving undue hardship for discharging student loans through the bankruptcy process more attainable for borrowers.

Prior to these recent decisions, the 8th Circuit heavily weighed whether an income-based repayment plan was available to the debtor. If one was available to the debtor and the debtor had sufficient income to make student loan payments through one of these plans, the student loan debt would not be discharged. However, the two recent decisions from the Northern and Southern District of Iowa have held that not discharging student loans can still result in an undue hardship to the debtor even if the debtor is on an income-based repayment plan that does not require them to make monthly payments.

The first case, Matter of Zilisch, was decided in the Southern District of Iowa. This case involved a 41-year-old single mother who owed approximately $145,482.85 in student loans from several degrees she obtained from 1997 to 2012. She then filed Chapter 7 bankruptcy in 2018 and sought to have the balance of her student loans discharged due to hardship. The Court considered the debtor’s income and noted that since she had been diagnosed with an autoimmune disorder, this would limit her ability to earn income in the future. The Court also analyzed her expenses and concluded that she had just enough money to satisfy her and her child’s needs with little money left over after paying for necessities. Finally, the Court concluded that the debtor may qualify for a $0.00 payment under an income-based repayment plan, but the fact that she has not yet defaulted on her student loans and can afford a $0/month payment does not mean that she is not struggling financially and the student loan obligations do not constitute an undue burden. The Court therefore determined that this was an undue hardship and discharged the loans. Matter of Zilisch, 2021 WL 4073035 (Bnkr. S.D. Iowa 2021).

The Northern District of Iowa case, In re Ashline, also centered around a single mother who obtained her undergraduate and graduate degrees and owed more than $230,000 in both private and federal student loans. The Court noted that the debtor was eligible for an income-based repayment plan that would require her to pay $65/month over the next 20-25 years, resulting in her paying off her student loans until she was 69 to 74 years old. However, the Court said that even if the debtor were to make all of the monthly payments under the repayment plan, she would face a “tax bomb” which would be due in full immediately upon her student loans being forgiven after completing the plan. The Court held that this factor weighed heavily in their analysis since the debtor would face a significant tax burden that she could not afford when she reaches retirement age and discharged the balance of her student loans. In re Ashline, 2021 WL 4448544 (Bnkr. N.D. Iowa 2021).


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This Wandro & Associates Update is intended to inform firm clients and friends about legal developments, including recent decisions of various courts and administrative bodies. Nothing in this Practice Update should be construed as legal advice or a legal opinion, and readers should not act upon the information contained in this Update without seeking the advice of legal counsel.

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