As of late 2015, about 40 million people in the United States owed a total of $1.2 trillion in student loan debt, an average of $30,000 in debt per student loan borrower. Reform of the student loan system is likely to be a significant issue in the upcoming presidential election, and student loans have become a topic of much discussion in the media, much of it of questionable accuracy. The arrest of a man in Houston, Texas in February 2016, supposedly due to student loan default, made headlines around the country, but the situation was not as straightforward as initial reporting made it seem. The use of federal marshals to enforce student loan debt at all still seems troubling, but this might at least be one area in which bankruptcy, through the automatic stay, can offer some immediate assistance.
Part of what makes student loan debt so pervasive is its distinctive treatment by the federal Bankruptcy Code. Certain types of debt are not subject to discharge at the end of a bankruptcy case. Most of these types of debt are based on factors like the fault of the debtor, such as cases of fraud or embezzlement, certain tax debts, and domestic support obligations like child support.
Student loan debt, both public and private, is also included on the list of nondischargeable debts, 11 U.S.C. § 523(a)(8), although the rationale for its nondischargeability may not be as clear. The only exception is when repayment would cause “undue hardship” to the debtor or the debtor’s dependents, but courts interpret this very narrowly. See Brunner v. N.Y. State Higher Educ. Svcs. Corp., 831 F.2d 395 (2d Cir. 1987); In re Pena, 155 F.3d 1108 (9th Cir. 1998).
As the amount of student loan debt increases, and the number of defaults goes up, student loan creditors are seeking ways to collect the amounts they are owed. The federal government, through the Department of Education (DOE), is perhaps the largest student loan creditor, with nearly $855 billion in outstanding direct loans in the first quarter of 2016. The DOE must go through a debt-collection procedure like other creditors, but it has the benefit of relatively direct access to the U.S. Marshals Service. The automatic stay in a bankruptcy case halts pending collection actions, but not arrest warrants or criminal cases. 11 U.S.C. § 362(b)(1).
A news story out of Houston, Texas that went “viral” in February 2016 involved the arrest of a man by U.S. Marshals in connection with his default on his student loans. The arrest resulted from his failure to appear in court and the circumstances surrounding the marshals’ attempt to contact him. The likelihood of arrest for student loan default is actually quite small, except in that particular federal district, apparently. Another media investigation found that one judge in the Southern District of Texas was responsible for nearly all arrest warrants issued in connection with student loan defaults nationwide.
Debt relief attorney Devin Sawdayi guides individuals and families in Los Angeles through the processes of Chapter 7 and Chapter 13 bankruptcy, helping them rebuild their finances with dignity and respect. Contact us online, at (310) 475-9399, or at (800) 474-6050 today to schedule a confidential consultation to see how we can help you.
More Blog Posts:
Courts Begin to Reconsider Standard Used to Determine Dischargeability of Student Loans, Los Angeles Bankruptcy Lawyer Blawg, April 4, 2016
California Bankruptcy Court Rules on Dischargeability of Student Loans in Chapter 7 Case, Los Angeles Bankruptcy Lawyer Blawg, March 30, 2016
Ninth Circuit Affirms Partial Discharge of Student Loan Debt in Chapter 13 Bankruptcy, Los Angeles Bankruptcy Lawyer Blawg, April 9, 2015