A practicing lawyer with an MBA was able to discharge $264,000 in student loan debt because Bankruptcy Judge Charles D. Novack of Oakland, Calif., decided that the debtor’s “dismal circumstances will persist.”
The 56-year-old man had amassed $74,000 in student loans to finance his college, law school and business degrees. Despite having paid more than $40,000 toward the loans over the years, the debt ballooned to $264,000 with interest.
Ordinarily, possessing advance degrees and failing to sign up for one of the Department of Education’s repayment programs will doom an effort at discharging student loans under Section 528(a)(8). This case was different because the debtor had tried hard for years to land traditional legal jobs but mostly worked as a contract lawyer earning trifling income. He lived frugally, had no assets, and had a minimal standard of living, Judge Novack said.
Not even the government contended he might earn a better living by abandoning his legal career. To satisfy the Brunner test’s requirement that the debtor’s current state of affairs is likely to persist for years, Judge Novack said, “[I]t is a fool’s errand to presume” that the debtor will succeed after 30 years of trying unsuccessfully to make a good living as a lawyer.
Often, judges will rebuff attempts at discharging student loans if the debtor has not signed up for one of the government programs allowing student loan debt to be written off after 20 years with no payments at all if the borrower’s income remains trifling. In this case, one program would have eventually discharged more than $700,000 in debt and the other $450,000 when the debtor reached nearly 80 years of age.
Judge Novack sympathized with the debtor’s concern about “the tax implications of the significant debt-forgiveness provisions under either plan.”
Judge Novack’s opinion is a template for the evidence a debtor must adduce to shed student loans. Reading the decision suggests that the debtor performed his best legal work in representing himself in the discharge litigation. Perhaps he may be able to develop a career as a bankruptcy lawyer specializing in student loan discharge litigation.