Student loan debt in the United States continues to mushroom,
and according to the Federal Reserve, is approaching the $1 trillion mark. As bankruptcy practitioners and many in the
public well know,, the Bankruptcy Code generally prohibits debtors from
discharging student debt. The Bankruptcy
Court for the District of Idaho recently invoked the seldom used exception to
this rule when it discharged $83,000 of $93,000 in student loan debt. In re McDowell, __ B.R. __ (Bankr. D.
Id. 2016).
The Court
found that the debtor, a 43-year old single mother of two children, was
entitled to the undue hardship exception because she was unable to maintain a
minimum standard of living, which would continue for a long period of time. The
debtor worked 32 hours a week, earning $3,400 per month. After an extensive analysis, the Court ruled
that the $83,000 discharge was appropriate, citing the debtor’s health issues,
notwithstanding the fact that the debtor had used credit to purchase a
motorcycle and spent thousands on a trip to South America. The Court explained “while her financial
decisions have not been perfect…she would have nonetheless been unable to make
any substantial student loans payments while meeting her normal living
expenses.”
The
increasing prevalence of burdensome student loan debt raises the question of
whether the reasoning of In re McDowell will
set a trend for other bankruptcy courts across the country.
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