For Hundreds of thousands Deep in Pupil Mortgage Debt, Chapter Is No Simple Repair

“It’s an untouchable subject,” she said.

The reorganization of the bankruptcy rules began in 1976 with unfounded rumors.

A handful of lawmakers said they heard of a parade of young doctors and lawyers trying to play the system and work off their debts as they embarked on lucrative careers. The legislature tightened the rules and largely prevented borrowers from applying for relief within five years of completing their studies. The rules only got stricter over the next three decades.

Borrowers must demonstrate that their student loans present “unreasonable hardship” – a standard that is interpreted differently depending on where you live. Some lawsuits, including those in Nebraska where Ms. DeLaet has filed, have the judge review a “set of circumstances” for the debtor and make a decision.

Other jurisdictions use a less flexible standard, the Brunner test, named after the case in which it was found. The judges must answer three questions in the affirmative in order to settle the debt. Has the debtor made good faith efforts to repay the loan? Second, is the debtor unable to maintain a minimum standard of living while making payments? Finally, is the debtor’s situation likely to continue?

But jurisdictions that use the Brunner test also apply it differently. Some require the judge to give borrowers a “certainty of hopelessness” in paying off their debts. No other jurisdictions.

Here the Johnsons could have benefited from geographic luck.

Attorneys at Educational Credit Management Corporation – a nonprofit that collects defaulted loans on behalf of the federal government – investigated how the Johnsons were spending their $ 2,100 monthly income.

All expenses were audited, including Ms. Raney-Johnson’s monthly union dues of $ 35, her retirement contribution of $ 100, and the repayment of loans from her retirement plan of $ 215. The nonprofit lawyers argued that none was necessary to maintain a “minimal standard of living”.

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