Do student loan creditors ever agree to the discharge of their debts in bankruptcy?

It doesn't appear so from a recent bankruptcy court case from the District of Massachusetts.

A former lawyer was found to be so mentally unbalanced that he is unable to work at more than menial jobs, in this court opinion by highly respected U.S. Bankruptcy Judge Joan Feeney. The debtor was able to have his student loans discharged in bankruptcy. In re Ablavsky, Bankr. Court, D. Massachusetts 2014.

What's notable to me is that although the debtor put on detailed expert testimony from a Harvard-trained psychiatrist, the Dept of Education and the other student loan creditor still argued that the debtor was not entitled to an undue hardship discharge of his student loans.

The Department of Education also argued that the debtor should not get a bankruptcy discharge of his student loans because he had not participated in any of its alternative repayment options, or applied for a disability discharge using the DOE's administrative procedures. Neither of those options are mentioned in the Bankruptcy Code or required by the statute to receive a hardship discharge in bankruptcy.

The Court explained the "Brunner test" and the "totality of the circumstances test" and found that the debtor was eligible for a bankruptcy discharge of his student loans under either test. And even though the debtor had pled guilty to the crime of destroying a court file when he was a lawyer, the court found that his actions were the result of his mental illness, not that he was a criminal that brought all his problems on himself.

So if you attempt to discharge your DOE student loans in bankruptcy, just be prepared for a fight. If the Dept of Education won't concede this one, it's difficult to imagine any that they would concede.