The Department of Education intervened on Tuesday in the case of Robert Murphy, an unemployed 65-year-old who has waged a three-year legal battle to erase his student loans in bankruptcy, Bloomberg News reported yesterday. A win for Murphy would relieve him of $246,500 in debt and could loosen the standard used to determine how desperate someone needs to be to qualify for relief. The court asked the Education Department to weigh in on the matter. In a document submitted to the court on Tuesday, government lawyers urged the federal judges not to cede any ground to borrowers who say they are in dire financial straits. Doing so would imperil “the fiscal stability of the loan program” that has existed for half a century. “That is part of the bargain that parents strike when they take out loans later in their work life,” the lawyers added. Murphy took out several loans to send his three children to college, but he lost his job at a manufacturing company in 2002 and has not been able to find work since. No student debtor should get a break on student loans unless they can show a “certainty of hopelessness,” said the government’s lawyers. “[A] debtor must specifically prove a total incapacity in the future to repay the debt for reasons not within his control,” they added. The lawyers said that the point of keeping such a stringent standard is to ensure “that bankruptcy does not become a convenient and expedient means of extinguishing student loan debt.” Read more.
To read further analysis of student loans in bankruptcy, be sure to pick up a copy of ABI’s Graduating with Debt: Student Loans under the Bankruptcy Code.
