Oregon Debtor Discharges Law School Debt

It is well-known that student loan debt is particularly burdensome. The bankruptcy code does not take kindly to it, and over the last fifteen years Congress has increasingly altered it to protect creditors’ interests, including its own. Although, in recent years it has enhanced income-contingent repayment plans and hardship discharges. Nevertheless, debtors are still taking their cases to bankruptcy court, and thankfully winning against their creditors. The latest victory goes to a debtor who had $85,000 in student loan debt for a law degree. Here are the facts.

  • Michael Hedlund borrowed money from The Education Resources Institute (TERI) and the Pennsylvania Higher Education Assistance Agency (PHEAA) in the form of guaranteed federal loans.
  • Hedlund sat for the bar exam twice, failed, and then locked his keys in his car for the third time. Because he could not become a lawyer, he lost his job. This is a reason not to take on student loan debt for professional education: If you can’t obtain the license, you still have to pay the debt.
  • Starting in 1999, Hedlund obtained forbearances due to his low income, which allowed the interest to accrue. After his forbearances ended, he tried to consolidate his loans but was told they were already in default status. Nowadays, he would qualify for the government’s Income-Based Repayment (IBR) plan, but that didn’t exist at the time.
  • After TERI and PHEAA began garnishing Hedlund’s wages in 2003, he filed chapter 7 bankruptcy.
  • The bankruptcy court granted a partial discharge of all but $30,000 of Hedlund’s debts to PHEAA. A Bankruptcy Appellate Panel reversed the decision, so Hedlund appealed to the 9th Circuit Court of Appeals, which sided with Hedlund. The case went back to the bankruptcy court, the judge passed away, and the successor judge again sided with Hedlund. PHEAA appealed to district court, won again, and finally the case went to the 9th Circuit Court of Appeals again. The lesson here is that some student loan bankruptcy cases can take a very long time to reach a conclusion, but often the money is worth it.
  •  At issue was whether Hedlund had made a “good faith” effort to repay the loans. Compared to a similar case, the appellate court found that he had, granting him a partial discharge of his loans.

Michael Hedlund fought hard to discharge his student loans, and by sticking it out he won against a tenacious creditor. If you are in a similar situation as he was, and you have the help of an experienced and equally tenacious Las Vegas bankruptcy lawyer, you might be able to reduce some of your student loan debts as well.

For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-880-5554 to set up your free consultation.