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The Background

For over a decade, Joanne Dempsey had been chipping away at her student loan. But in 2004, misfortune struck. Joanne lost her well-paying job (the first of several calamities), and decided to consolidate her student loan debt with her other debts in an attempt to have a lower monthly payment. After two years without work, Joanne finally landed another job, but the job didn’t last long. While on her next job search, Joanne had a stroke, bringing her search to an abrupt halt. She was significantly disabled following her stroke, and as a result, she qualified for Social Security Disability in the amount of $1,400 a month.

During all of this time, Joanne’s debt continued to sit on the back burner as she was unable to pay it given her condition. For awhile the consolidated loan was in forbearance, which means it was temporarily put on hold because she was unable to pay. However, eventually that debt came due, and when she was still unable to pay, it was sent to a collection agency.

Atlanta Legal Aid Takes the Case

Atlanta Legal Aid attorney Erik Heath took the case and advised Joanne to file for Chapter Seven bankruptcy, as a way to rid herself of her debt. Erik reached an agreement with the U.S. Attorney’s office, and left Ms. Joanne Dempsey blessedly debt-free.

What Constitutes a Good Case for Bankruptcy?

There are three conditions that must be present to prove the “undue hardship” required to discharge student loans in bankruptcy.

  1. There must be genuine financial hardship.
  2. The hardship must be likely to persist for a significant period of time.
  3. The debtor must have made good faith efforts to repay.

Although “financial hardship” has no precise definition, Atlanta Legal Aid attorney Erik believes—and his opinion prevailed in Ms. Dempsey’s case—that a person eligible for Atlanta Legal Aid representation is almost surely a person in financial hardship. For most purposes, Legal Aid eligibility requires that income not exceed 150% of the federal poverty level, which in 2013 was $17,235 for one person living alone, or $435 more than Ms. Dempsey’s income.

The hardship persistence factor, Erik asserts, is particularly important. Ms. Dempsey’s case had two characteristics making it evident that her hardship would not ease. First, her disability prevented her from working. Second, her age–sixty-two–meant that she was nearing the end of the typical working life.

A good faith effort to repay debt does not mean what it seems to mean. Actually making payments on the debt is not necessarily required. Rather, good faith in this context means attempting to maximize income and minimize expenses.

When all three factors are present, especially the loan’s distance in time, bankruptcy is a realistic option to pursue.

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