Student Loans and Bankruptcy-Changes on the Horizon?

Student loan debt is at an all-time high, a number that is expected to hit $1 trillion dollars this year (thats $1,000,000,000,000!!!!). With the job market the way it is, many people with high amounts of student loans have little opportunity to get back on track with their finances. That is why the National Association of Consumer Bankruptcy Attorneys (NACBA) is pushing for legislation with Congress that will allow individuals to discharge their student loans through bankruptcy.

Prior to 1976, student loans were able to be eliminated with bankruptcy. However, all that has changed. The way the system works now is that the student must prove to the bankruptcy court that their student loans cause an "undue hardship". Outside of showing disability and an inability to work, proving "undue hardship" is very hard to show.

People may worry that allowing student loans to be discharged in bankruptcy will lead to students receiving ther diplomas one day and filing for bankruptcy the next day. However, bankruptcy doesn't quite work like that. Bankruptcy is a lengthy legal process, and you still must qualify for bankruptcy. There are many anti-abuse provisions in the bankruptcy code and people with the ability to pay their student loans would still have to pay. But allowing student loans to be discharged in bankruptcy would significantly help those people who see no light at the end of the tunnel as far as their student loans are concerned.

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Categories: Chapter 13, Chapter 7