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Can I Discharge a Co-Signed Student Loan Debt in Bankruptcy?


Some debts cannot be discharged in Chapter 7 bankruptcy. One of the better-known categories of non-dischargeable debt is student loans. But in fact, it is not impossible to discharge student loan debt. An Iowa bankruptcy court may grant a discharge if forcing the debtor to continue paying the loan would impose an “undue hardship.”

Judge Grants Debtor Chapter 7 Discharge Due to “Undue Hardship”

But what if the debtor was not the person who took out the student loan, but rather a co-signer? An Iowa bankruptcy judge recently confronted this issue. In this case, a 52-year-old debtor filed for Chapter 7 bankruptcy protection. Among his debts were two student loans that he co-signed for his niece approximately 12 years ago. The debtor’s niece ultimately defaulted on her loans and filed for bankruptcy in 2016.

The combined balance on the niece’s loans is $28,000, which exceeds the debtor’s ability to pay back on his factory worker’s salary of around $26,000. Although the debtor is employed, he has limited assets–just a car and a $3,000 retirement account–and is currently living with family members. Given this, the debtor asked the bankruptcy court for an undue hardship discharge of the student loan obligations. Alternatively, the debtor asked the court to hold that the exception to discharge for student loan debt did not apply at all to co-signers such as himself.

On this latter point, the debtor pointed to decisions from Iowa bankruptcy judges in the 1980s that expressly held a non-student co-signer could discharge a student loan debt. The judge in this case, however, declined to follow those decisions. In the intervening years, a number of other federal courts have held a co-signer cannot automatically discharge a student loan debt. And the judge said the state of the law within the Eighth Circuit, which includes Iowa, “is not entirely clear.”

That said, the judge said it was unnecessary to resolve this question because it was clear the debtor was entitled to an undue hardship discharge. Courts in the Eighth Circuit look at the “totality of the circumstances” when deciding whether or not a debtor is faced with an undue hardship. Here, the judge said the debtor is unlikely to ever earn more than $40,000 per year as a manual laborer. And taking into account all of his necessary living expenses, the debtor is actually faced with “a deficit of $272 per month without including student loan payments.” And given the debtor personally received no educational benefits from the student loans, requiring him to repay them “would result in an undue hardship.”

Speak with an Iowa Chapter 7 Bankruptcy Attorney Today

Many people find themselves in trouble with creditors due to co-signing a family member’s obligation. If you find yourself in such a situation and do not know what to do, it is imperative you contact a qualified Southeast Iowa Bankruptcy Attorney as soon as possible. Call the Noyes Law Office, P.C., today at 641-472-3236 to schedule a free, no-obligation consultation with a qualified Chapter 7 bankruptcy lawyer today.


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