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Oh, What a Relief It (Sometimes) Is: An Analysis of Chapter 7 Bankruptcy Petitions to Discharge Student Loans

42 Pages Posted: 4 Oct 2017  

Aaron N. Taylor

Saint Louis University - School of Law

Daniel James Sheffner

Administrative Conference of the United States (ACUS)

Date Written: 2016

Abstract

Conventional wisdom dictates that it is all-but-impossible to discharge student loans in bankruptcy. This contention, however, misstates the fact that bankruptcy discharge of student loans is possible—and it happens. This Article presents a statistical analysis of what happened when Chapter 7 bankruptcy petitioners in the First and Third federal judicial circuits filed 523(a)(8) adversary proceedings—or proceedings to discharge their student loan debt due to an “undue hardship.” In our analysis, we found undue hardship discharge rates of 54% in the First Circuit and 24% in the Third Circuit. But more significantly, we found that undue hardship determinations were relatively rare. A plurality of cases was dismissed at the debtors’ behest. The next most common resolution was settlements between debtors and creditors. And when all forms of resolution were considered, 51% of First Circuit debtors and 46% of Third Circuit debtors who sought discharge of their student loans obtained some form of relief—either an undue hardship discharge, a settlement, or a default judgment. These rates, while not representing certainty, surely do not reflect the near-impossibility of relief that is often assumed when student loans are discussed in the context of bankruptcy.

Suggested Citation

Taylor, Aaron N. and Sheffner, Daniel James, Oh, What a Relief It (Sometimes) Is: An Analysis of Chapter 7 Bankruptcy Petitions to Discharge Student Loans (2016). Stanford Law & Policy Review, Vol. 27, 2016. Available at SSRN: https://ssrn.com/abstract=3046606

Aaron Taylor (Contact Author)

Saint Louis University - School of Law ( email )

100 N. Tucker Blvd.
St. Louis, MO 63101
United States
314-977-3393 (Phone)

Daniel Sheffner

Administrative Conference of the United States (ACUS) ( email )

1120 20th St NW
Suite 706 South
Washington, DC 20036
United States

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