Bankruptcy Attorney Reginald Osenton Remarks on Student Loan Discharges

Brandon, FL (Law Firm Newswire) February 17, 2016 – A pair of recent cases show bankruptcy courts may be increasingly receptive to discharging student loans.

In December 2015, the 8th Circuit Bankruptcy Appellate Panel approved the discharge of 11 of 15 student loans Chelsea Conway owed to a private lender. Also in December, a Missouri bankruptcy court discharged the entirety of Michael Abney’s federal student loans, even after an income-based repayment plan absolved him of any current payments on the basis of a lack of disposable income.

Reginald Osenton, a Tampa-area bankruptcy attorney, said the cases show courts are beginning to understand the hardships debtors face.

“In the Conway case, the appellate court overturned a trial court ruling in which none of the loans were discharged, partly on the basis that her income was expected to increase as the economy improved,” Osenton said. “The appellate court disagreed, and ordered a ‘loan-by-loan undue hardship analysis,’ which found that Conway could afford to make payments on just four of her loans. The remaining 11 were discharged.”

In the second case, debtor Michael Abney owed over $37,000 in federal student loans after having already made payments totaling $11,000. At the time he filed for bankruptcy, Abney was not required to make any payments on his current balance. That is because under federal income-based repayment rules, he effectively had no discretionary income with which to pay the loans. The bankruptcy court for the Western District of Missouri discharged all of Abney’s student loans on the basis that his income was unlikely to increase.

“What’s interesting in Abney’s case is the court’s concern for his retirement savings,” Osenton said. “Abney was making small contributions to a retirement plan, but had only amassed about $500. His contributions were counted among his necessary living expenses. Furthermore, the court emphasized his meager retirement savings as a reason why he should not be expected to make loan payments in the future.”

To Osenton, these cases represent a hope that bankruptcy judges understand the reality of a struggling economy.

“Bankruptcy courts have too often relied on an assumption the economy, and individuals’ incomes, will improve. Middle-class wages have basically flat-lined for years now. Much of the nation’s nearly $1.4 trillion in student loan debt will likely go unpaid, and the sooner we deal with that fact, the better,” Osenton said.