She Has No Home, Car Or Job After Bankruptcy, But Still Owes for Student Loans

Vera Thomas scraped together enough money with the help of about $7,000 in student loans to attend community college for two semesters to try to better her job prospects.That was in 2012. Two years later, unemployed and steeped in debt because of a worsening health condition called diabetic neuropathy, she quit paying on her loans. She has muscle weakness, pain and numbness.Thomas, 62, filed for bankruptcy last year. Her credit card balance, medical bills, car loan and other expenses were wiped away. But the one debt that’s hounded her the most — her student loans — is still there.Bankruptcy for Thomas and others like her is not the fresh start for which it was designed.“I’m walking on eggshells every day,” she said. “I have applied for so many jobs. I think they look at my age, and I haven’t had any luck.”Thomas has few belongings. Everything she owns can fit inside a mid-size sedan. She’s on food stamps, and her two-year job hunt hasn’t gone well. Her case illustrates how difficult it is for borrowers to discharge student loan debt in bankruptcy even when they are poor, unhealthy and facing a bleak financial future. Consumer advocates say that’s due to outdated laws Congress created years ago as well as judges who have strictly and narrowly interpreted the law.“She’s the type of consumer that bankruptcy should provide some relief for,” said John Rao, staff attorney with the National Consumer Law Center in Boston.Judge Harlin Hale, the Dallas bankruptcy judge in Thomas’ case, said he felt a “great deal of sympathy” for Thomas in his December 2017 order but said that his hands are tied due to legal precedent. The “demanding standard” adopted by federal courts in the 5th Circuit that includes Dallas says borrowers must show “total incapacity” to pay their student loan now or in the future in order to erase the debt, the judge said. Consumer lawyers like Rao say that interpretation is contrary to the plain language of the law that requires a showing merely of “undue hardship.” But the bankruptcy law does not define that term, leaving it up to judges to interpret it. Some recent legal challenges in other states, including Massachusetts, have successfully freed borrowers from student loan debt. But Texas seems to offer little chance of such a result.Hale said that in his 15 years on the federal bench, he has never discharged a student loan over the objection of a lender. He wrote that because people are increasingly being forced into bankruptcy due to student loan debt, more legal guidance from higher courts is needed to help judges like him deal with the growing problem.  Continue reading...

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