Medical Issues and Student Loan Debt
Student loan debt is a rising problem, one that may one day rival the housing market crash in 2008-2009, or that may even cause another one. The student loan ombudsman for the Consumer Finance Protection Bureau, Rohit Chopra, recently said that he has seen many consequences of Americans’ massive student loan debt, but that “the impact on the housing market is the most troubling part.”
Some debts, such as student loan debt, may be treated differently from other kind of debt, and it is often difficult to dispose of it in bankruptcy. However, for those whose bankruptcy is brought on by medical bills, there may be some hope to have student loans discharged.
When student loans can be discharged
The Bankruptcy Code law allows for student loan debt to be discharged if repayment will cause an “undue hardship.” The Sixth Circuit Court of Appeals (which has jurisdiction over Michigan residents) has set out three factors that show undue hardship:
- If the debtor cannot maintain a “minimal” standard of living for the debtor and his or her dependents if forced to repay the loans.
- There are additional circumstances that show that this state of affairs will likely continue for most of the repayment period of the student loans.
- That the debtor has made good-faith efforts to repay the loans.
If someone is declaring bankruptcy due to medical bills and has ongoing medical issues that make working difficult (in the court’s words, that show a “certainty of hopelessness”), this may be sufficient to meet factors 1 and 2.
A Sixth Circuit case from 2007, In re Barrett, provides an example. The debtor had numerous medical problems, beginning with a diagnosis of Hodgkin’s Disease in 2000. He was too weak from chemotherapy to work, and so applied for bankruptcy protection in December 2001. In October 2002, he was diagnosed with avascular necrosis, a condition where the patient’s bones die due to inadequate blood flow. This caused “massive” pain in various joints and he went through several surgeries over the following years. As of 2007, he was still on three different pain medications several times per day.
As a result of his illnesses, he was only able to do computer work from home on a job-by -job basis (rather than regular employment). This satisfied the courts that he could not maintain a minimal standard of living (factor 1) and that his circumstances were unlikely to change (factor 2). The court then concluded that his student loans should be discharged as part of the bankruptcy process, since he met all the factors laid out above.
Medical debt is a huge problem for many people, and is the leading cause of bankruptcy in the United States. Medical debt may also be the result of ongoing medical issues that make work difficult or impossible. Where circumstances permit, those same ongoing conditions may mean that student loan debt can be discharged in bankruptcy.
Bankruptcy relief will depend highly on the individual’s specific facts and circumstances. Many factors can affect how a court evaluates an individual case, and there are a host of other factors that could change a court’s ruling one way or the other. If you are facing overwhelming debts, contact a bankruptcy attorney in your area to learn more about what options you may have.