Many Americans in Oak Park, Illinois and throughout the Chicago area are struggling to repay student loans but do not see a path to discharge through consumer bankruptcy. For many of those debtors, the student loans they owe are private loans that are ineligible for the income-based repayment options available to borrowers of federal student loans. Even when debtors have a mix of federal and private student loans, the lack of income-based repayment options for private loans can make their repayment difficult if not impossible. While income-based repayment options exist for most federal loans, there remain many debtors who do not realize they may be eligible for lower payments through income-driven repayment plans.
Recognizing the financial devastation of student loans, the American Bankruptcy Institute (ABI) recently issued recommendations for reform when it comes to student loans and bankruptcy. We will give you some more information about the key takeaways from this set of recommendations.
Consumer Program for Access to Personal Bankruptcy and Legal Counsel
One of the first and most important recommendations from the ABI concerns the development of a program for student loan borrowers to give them better and clearer paths to consumer bankruptcy, as well as access to consumer protection lawyers who can provide counsel for managing student loans and seeking to have these debts discharged in bankruptcy. According to the ABI, many consumer bankruptcy attorneys have used “very creative litigation to obtain relief for student loan debtors,” but not all borrowers can afford to work with a lawyer. The ABI wants to change that.
Repaying Student Loans Through Chapter 13 Bankruptcy
Even if you cannot get a discharge of student loans through Chapter 7 bankruptcy, or if you do not qualify for Chapter 7 bankruptcy because you cannot pass the means test, it is important for student loan borrowers to have some kind of path toward discharge or forgiveness. The ABI emphasizes the utility of Chapter 13 bankruptcy repayment plans to give student loan borrowers some relief from unmanageable monthly student loan payments. With Chapter 13 bankruptcy, debtors enter into a repayment plan based on their income, and as such cannot be required to make unmanageable payments for outstanding student loan debt.
Once a debtor completes the terms of a Chapter 13 bankruptcy repayment plan, remaining debts typically are discharged.
Mediation Programs for Student Loan Debt
Not unlike mortgage mediation programs, the ABI recommends the creation of student loan debt mediation programs to help debtors. More specifically, the ABI committee recommendations indicated that a “local rule requiring mandatory mediation for student loan dischargeability actions” could be effective in helping debtors.
Changes to Student Loan Discharge in Bankruptcy
Finally, the ABI committee recommendations endorsed changes to the bankruptcy code so that student loan borrowers would no longer have to show an “undue hardship” in order to have loans discharged, but rather simply a “hardship.” In addition, the recommendations urged Congress to define what constitutes a “hardship” while also suggesting that a “totality of the circumstances” test could better serve debtors than any form of the current “undue hardship” test.
Speak with an Oak Park Bankruptcy Lawyer
Do you have questions about student loan debt and bankruptcy? An experienced Oak Park bankruptcy attorney can discuss your options for managing student loan debt and seeking a discharge through personal bankruptcy. Contact the Emerson Law Firm today.
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