Bankruptcy: Why Are Student Loans Difficult to Discharge?

Last month, we discussed how student loans are very hard to discharge in bankruptcy. Photo of bills and calculator

With this in mind, recently Forbes had an interesting article about why it is so hard to discharge these loans in bankruptcy, in comparison to credit card debt, car loans and unpaid medical bills. The article notes that Congress is behind the difficulty, in part, because of the “widely shared belief that there are societal benefits to promoting homeownership and access to higher education.”

Currently, the bankruptcy code only allows student loan debt to be discharged in cases where it would pose “undue hardship” on a borrower. According to Forbes, Congress has fears that if people were allowed to discharge student loans, particularly private loans through bankruptcy, it would keep investors from placing capital into them, which may help makes them more affordable. However, some financial experts have debated this claim.

The news outlet reported that earlier this year, the Department of Education recommended that lawmakers allow private loans that do not offer income-driven repayment dischargeable in bankruptcy court. It reports that the hope is that this would “prod private lenders into giving borrowers the option to make more manageable payments.”

President Barack Obama’s administration is currently weighing what it should do to address the $1.2 trillion student loan deficit facing the country. Forbes offered a couple of theories about what could be done, including changes that would allow for bankruptcy judges to grant leeway in hardship claims, if a debtor could prove that an income-based repayment plan would stretch into his or her retirement years.

To read the Forbes piece, you can click the source link below.

If You Have Student Loans, Ask Our Lewisville Attorneys About Your Options

It is unfortunate that so many American graduates are struggling with student loan debt. We hope that Congress and/or the Obama administration does something soon to alleviate the burden debtors need to show when claiming a financial hardship.

Even though it can be incredibly hard to discharge student loans in bankruptcy, a filing can have a positive impact on people who are struggling with other forms of debt. Through bankruptcy, you may be able to discharge debts like credit card debt and medical bills, which can make student loan payments easier. In addition, we have read numerous stories about graduates who have utilized Chapter 13 bankruptcy to enter into manageable repayment plans for student loan debt.

For more information about Texas bankruptcy law, you can visit our Twitter and Facebook pages. You can also reach our law firm directly by calling (972) 315-6222.

Julian, Crowder & Shuster, P.C. – Lewisville Bankruptcy Attorneys

Source: http://www.forbes.com/sites/stephendash/2015/10/25/why-student-loans-are-so-difficult-to-discharge-in-bankruptcy/



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