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Partial Student Loan Hardship Discharge

bankruptcy and student loans6th Circuit Courts are the most likely to up hold partial discharges of student loans.

In Re Saxman, — F.3d — 2003 WL 1870489 (9th Cir. 2003)   

In this case the Bankruptcy Court determined that a portion of debtor’s student loan debt would impose an “undue hardship”, because it could not discharge a portion of the portion of the debt that caused the hardship it discharged the entire debt. The District Court, reversed and ordered the bankruptcy court to partial discharge the student loan holding a bankruptcy judge may partial discharge debtor’s obligation if the debtor can, repay a portion of the student loan debt. The Ninth Circuit affirmed,

 In re Blair, 291 B.R. 514 (B.A.P. 9th Cir. 2003)

The Bankruptcy Court discharged over half of the debtor’s student loan debt although it found that none of the hardship discharge elements had been proven.  On appeal, the Ninth Circuit B.A.P. reversed, finding that the Bankruptcy court had to make “a preliminary finding of ‘undue hardship’ before it could exercise its equitable powers and grant a partial discharge of student loans. This would ensure the bankruptcy court did not rewrite with it’s equitable powers and ‘swallow whole’ the exception to the discharge of student loans.”

In re Siegel, 2002 WL 31050760 (Bankr. N.D. Ohio 2002)

A 47-year-old debtor with no dependents, who had over $400 a month in disposable income, did not meet undue hardship test, but the Court reduced over $30,000 student loans balance to $16,500 and allowed the debtor to repay loans over 12 years, with no interest, at $1,375 per year.

  Mort v. TSAC, 272 B.R. 181 (W.D. Va. 2002)

Althogh the Bankruptcy Court found the debtor lacked “good faith” and precluded discharge of her entire student loan debt, the court grant partial discharge. The District Court reversed and held that bankruptcy court could only grant a partial discharge of student loan upon a finding of “undue hardship”and a lack of good faith precluded even partial discharge of student loan debt.

In re Afflitto, 273 B.R. 162 (Bankr. W.D. Tenn. 2001)

Court ruled the Debtor had an “undue hardship” and under 105(a) it was able “to fashion a remedy to provide the Debtor the benefit of a ‘fresh start’ while at the same time granting some satisfaction of the student loan debt.” Entering a Partial Discharge

In re Yapuncich, 266 B.R. 882 (Bankr. D. Mont. 2001)

Debtor met the “undue hardship” test, and the Court, following Myrvang, discharged all but $20,000 of the debtor’s student loan debt.

In re East, 270 B.R. 485 (Bankr. E.D. Cal. 2001)

In re Nary, 253 B.R. 272 (N.D. Tex. 2000)

Court “adopts the holding of Hornsby that § 105(a) authorizes a bankruptcy court to grant a partial discharge where the undue hardship requirement of § 523(a)(8) is met as to part but not all of a student loan.”

In re Myrvang, 232 F.3d 1116 (9th Cir. 2000)

Ninth Circuit rejected Taylor 223 B.R. 747 from 1998 reversing itself and adopts Hornsby in this marital debt case.

In re Hornsby, 144 F.3d 433 (6th Cir. 1998)  Student Loan Hardship Discharge Bankruptcy

The Court of Appeals holds that, despite fact that “undue hardship” test was not met, bankruptcy court has power under Section 105 to fashion remedy appropriate remedy, which could be partially discharging debt, instituting a repayment schedule, granting debtor a deferment or allowing debtor to revisit determination at a later time.