The Intersection of Student Loans, Mental Health, and Bankruptcy (#6 of 40)

TL;DR

1.      It is extremely difficult to get rid of student loads because they are subject to a special test called the "undue hardship" standard.

a.      (con) the standard is vague and subjective 

b.      Proving it can be expensive

2.      If you have a mental illness that prevents you from working/paying off student loans (or even just think you might)

        start looking up the symptoms for "Bipolar Disorder."  As of now, you’re an actor. 

        You then MUST find a doctor willing to sign off, saying specifically that you are unable to work because of your illness. If you are hesitant, scared, or think that you might fuck this up -- reach out to me and I can help  you.

a.      provide documentation proving your illness prevents you from stable employment. (all it takes is one doctor willing to sign off)

b.      show that they have exhausted other options before filing for bankruptcy (extremely subjective, so let me help with this one)

c.      prove that their mental illness is long-term and prevents them from earning enough income to pay their loans back (again, using that same doctor previously mentioned,  have a conversation with them and ensure they're willing to sign off on this as well).

3.      Some proposed reforms include:

a.      Eliminating or modifying the undue hardship standard for student loan discharge

b.      Creating a presumption of undue hardship for borrowers who have documented mental illnesses

c.      Establishing clear and consistent criteria for determining undue hardship across all circuits

d.      Reducing the costs and barriers for filing an adversary proceeding within the bankruptcy process

e.      Providing more education and information to borrowers about their rights and options regarding student loan discharge

f.       Increasing access to affordable mental health care and support services for borrowers

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The Intersection of Student Loans, Mental Health, and Bankruptcy 

- by John Jolissaint 

Student loans are a major source of financial stress for millions of Americans. According to the CNBC + Acorns Invest In You Student Loan Survey, more than 60% of borrowers say student loan debt has negatively affected their mental health. Many borrowers struggle to keep up with their monthly payments, especially during the pandemic, and face the risk of defaulting on their loans. Defaulting can have serious consequences, such as wage garnishment, tax refund seizure, and credit score damage.

But what if borrowers could get rid of their student loans through bankruptcy?

·       Bankruptcy is a legal process that allows people to discharge some or all of their debts if they can prove that they are unable to repay them. 

·       However, student loans are not easily discharged through bankruptcy. 

·       In fact, they are one of the few types of debt that are subject to a special test called the "undue hardship" standard. Congress created this in 1976 to deter borrowers demo taking too much money 

The undue hardship standard was introduced by Congress in 1976 to prevent borrowers from abusing the bankruptcy system and avoiding their student loan obligations. To qualify for undue hardship, borrowers have to:

1.     show that they cannot maintain a minimal standard of living if they have to repay their student loans, 

2.     that their financial situation is unlikely to improve in the future, and 

3.     that they have made good faith efforts to repay their loans.

However, this standard is very vague and subjective, and it is up to the discretion of individual bankruptcy judgesto decide whether a borrower meets it or not. As a result, there is a lot of inconsistency and unpredictability in how student loan discharge cases are handled across the country. Some judges are more lenient and sympathetic than others, and some circuits have adopted different tests or factors to determine undue hardship.

Moreover, proving undue hardship can be very costly and time-consuming for borrowers, who have to hire lawyers, gather evidence, and go through a separate trial within the bankruptcy process. Many borrowers are discouraged from even trying to discharge their student loans through bankruptcy, as they fear they will not succeed, or they cannot afford the legal fees. 

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According to a study by Jason Iuliano, a law professor at Villanova University, only 0.1% of student loan borrowers who filed for bankruptcy in 2007 attempted to discharge their student loans.

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One group of borrowers who may have a stronger case for undue hardship are those who suffer from mental illnesses that impair their ability to work and earn income. For example, borrowers who have been diagnosed with depression, anxiety, bipolar disorder, post-traumatic stress disorder (PTSD), or schizophrenia may face significant challenges in finding and keeping stable employment, managing their finances, and coping with stress. These mental health conditions may also affect their physical health and well-being, as well as their social and family relationships.

However, even for these borrowers, getting rid of their student loans through bankruptcy is not easy. 

·       They still have to provide written documentation from their doctors that confirms their diagnosis and its impact on their financial situation. 

·       They also have to prove that their mental illness is permanent or long-term, and that it prevents them from earning enough income to repay their student loans.

·       Additionally, they have to show that they have exhausted other options before filing for bankruptcy, such as applying for a disability discharge or an income-driven repayment plan.

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The current bankruptcy system does not adequately address the needs and challenges of student loan borrowers who suffer from mental health issues. It imposes a high burden of proof on them, while offering little certainty or relief. It also ignores the psychological toll that student loan debt can take on them, as well as the potential benefits of discharging their debt for their mental health recovery and well-being.

Therefore, there is a need for reforming the bankruptcy laws to make it easier and fairer for student loan borrowers to discharge their debt due to mental illness. 

Some possible reforms include:

●      Eliminating or modifying the undue hardship standard for student loan discharge

●      Creating a presumption of undue hardship for borrowers who have documented mental illnesses

●      Establishing clear and consistent criteria for determining undue hardship across all circuits

●      Reducing the costs and barriers for filing an adversary proceeding within the bankruptcy process

●      Providing more education and information to borrowers about their rights and options regarding student loan discharge

●      Increasing access to affordable mental health care and support services for borrowers

By making these changes, the bankruptcy system could better serve the interests of justice and compassion for student loan borrowers who struggle with mental health problems. It could also help them achieve financial freedom and stability, as well as improve their quality of life.

Summary

The article explores how bankruptcy laws treat student loans and the mental health implications for those unable to discharge this debt. It explains that student loans are subject to a strict test called the "undue hardship" standard, which makes it very difficult for borrowers to get rid of their debt through bankruptcy. It argues that this standard is unfair and harmful for borrowers who suffer from mental illnesses that affect their ability to work and repay their loans. It proposes some reforms to make the bankruptcy system more accessible and responsive to the needs of these borrowers, such as eliminating or modifying the undue hardship standard, creating a presumption of undue hardship for borrowers with documented mental illnesses, and providing more education and information to borrowers about their rights and options. It concludes that these reforms could help borrowers improve their financial and mental health outcomes.

References:

How To Have Student Loans Wiped Out Due to Mental Illness | Legal Beagle https://legalbeagle.com/5608017-student-out-due-mental-illness.html

Biden Made It Harder to Get Rid of Student Debt Through Bankruptcy https://www.businessinsider.com/biden-made-it-harder-to-discharge-student-debt-through-bankruptcy-2022-5 

 Student loan debt hurts the mental health of most borrowers - CNBC https://www.cnbc.com/2022/01/29/student-loan-debt-hurts-the-mental-health-of-most-borrowers.html