Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Exposing the Secret to Wiping Out Student Loan Debt in Bankruptcy

Personal_Finance / Student Finances Jun 06, 2013 - 11:45 AM GMT

By: Money_Morning

Personal_Finance

Tara Clarke writes: Accepted wisdom says that there are only two (rather sobering) ways to relieve the burden of student debt: either pay it off, or depart from this earthly world.

Until now.

On May 22 the Ninth Circuit Court of Appeals wiped out $58,000 in student loan debt for a former law student in bankruptcy proceedings, sending shockwaves through the formerly impervious facade of student loan debt performance.


Ten years in the making, the ruling could burst the trillion dollar student loan bubble.

This is the case of Michael Hedlund.

His tale seems unexceptional in today's economic hard times.

Hedlund went to the University of Oregon and earned a bachelor's degree in business administration. He then attended Willamette Law School where he earned his J.D.

Hedlund financed his education with Stafford loans, a commonplace higher education loan backed by the U.S. government.

After graduating, Hedlund took the Oregon bar exam and worked as an intern for the Klamath County District Attorney.

That's when things began to fall apart.

Hedlund failed the bar. He tried and failed again. The DA fired him for he was not able to practice law.

In an effort to turn things around, Hedlund got a full time job as a counselor with the Klamath County Juvenile Department. He signed up to take a third stab at the bar exam.

The day of the exam, he accidentally locked his keys in his car and missed the test.

At this point, Hedlund gave up on trying to practice law. He married in 2000, and became a father in 2001.

But just because Hedlund gave up on his legal training didn't mean the lenders who paid for it were going to let him off the hook.

Hedlund owed PHEAA (Pennsylvania Higher Education Assistance Agency) more than $85,000, which came out to monthly payments around $800. He didn't make nearly enough money in his counselor position to pay that amount, so he began searching for relief.

After exhausting all forbearance opportunities, Hedlund applied to consolidate his student loans in an attempt to lower his monthly payment.

The lender lost his application causing Michael to default on his loans. Once he defaulted, he was no longer eligible for consolidation or any other program relief. He tried different avenues to consolidate his loans but was rejected at every turn. He made every attempt to continue paying for his loans.

But the lenders filed action against Hedlund for defaulting. They began garnishing his wages in small increments, which he did not contest.

Then, one of the lenders garnished a larger chunk, way too much for Hedlund to handle, as he frantically tried to keep his family afloat.

In a final act of desperation, Hedlund filed for bankruptcy.

Until Hedlund's case, bankruptcy was thought to be a safety net only available to failed businesses and unlucky or mismanaged personal finances.

Debt wrought from educating yourself is considered a non-dischargeable offense, unless you can show "undue hardship" - up until now a nearly insurmountable standard to prove in court.

Proving undue hardship is a costly and highly intrusive prospect. The burden is on the debtor to prove it's impossible for him or her to pay the student loan. The process involves a public, intimate, and downright embarrassing examination of your finances.

On top of that, different courts use different indicators to determine undue hardship, making the likelihood of success extremely difficult to predict.

But here we have Michael Hedlund, a shining example of a man who acted in good faith to repay his debt.

The Ninth Circuit looked upon Hedlund with an appraising eye.

Here is a debtor who made every effort to obtain employment, to maximize his income, and to minimize his expenses. He tried everything he could think of to reduce the monthly payments to a manageable amount, including negotiating with lenders. He even endured wage garnishments without protest until an overwhelming amount was taken.

Hedlund was judged to have done his absolute best to pay his debts and so the court discharged all but $32,080 of his remaining debt.

It decided that paying the full amount would be too onerous on Hedlund and his family.

This ruling opens the flood gates to student debtors across the nation.

By defining guidelines for undue hardship in a detailed, published opinion, the Ninth Circuit has given courts more freedom to say, "You've done enough to try to repay. We'll discharge your student debts."

Borrowers who have truly made every effort to repay their loans now have an avenue for relief.

Derek Foran, whose firm represented Hedlund, commented, "The Ninth Circuit's decision is important for other student debtors, because it clarifies the correct standard of review governing undue hardship determinations under the bankruptcy code. It will mean significant relief for student debtors - who often are unrepresented - seeking relief in bankruptcy court."

Now, imagine what would happen if an abundance of student debtors across the nation have circumstances as compelling as Hedlund's?

The implications are vast, given the student loan bubble.

Klamath Community College President Dr. Roberto Gutierrez commented to his local NBC affiliate: "An extreme measure would be that the bubble will burst as far as loans - and a lot of students will refuse to pay the loans anymore. Then we've got a problem, because then we may have lenders that do not want to loan anymore."

If the student loan bubble bursts, we are talking earth-shaking stuff here - as major as the subprime mortgage crisis in 2008.

And, just like subprime, Hedlund's case reiterates the idea that lenders have a responsibility to issue loans they know can actually be repaid.

Hedlund's case is a game changer for student debtors, and if enough borrowers like him are out there, it's a game changer for us all.

Source :http://moneymorning.com/2013/06/05/law-student-expose...

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in