Renewed Look into Student Loans and Personal Bankruptcy
If you are considering personal bankruptcy in Oak Park as an option to discharge student loans, you may have an easier path forward than you might expect. While it remains difficult to discharge student loans through Chapter 7 bankruptcy, a recent article in The Wall Street Journal reports that “borrowers are beginning to win battles to erase some student loans in bankruptcy court, overcoming stiff obstacles that have generally blocked that path except in extreme cases of financial hardship.” In other words, it may be possible to discharge student loans depending upon your specific circumstances.
Now that we are entering into a new year, what do you need to know about student loans and bankruptcy in 2017?
Reinterpreting the Definition of a “Student Loan”
As the article explains, the primary way in which a number of debtors have been able to discharge their student loans through Chapter 7 bankruptcy does not concern a change to the way that bankruptcy courts approach student loans and personal bankruptcy. The law still makes clear that a borrower must prove “extreme hardship” in order to discharge any loans that have been taken out for an “educational benefit.” If this language has not changed, how have more debtors been successful in discharging student loans? Were more of them able to prove extreme hardship?
In short, debtors have begun looking more closely at the language of “educational benefit” surrounding student loans and bankruptcy, considering ways to interpret it that might benefit struggling debtors. How could reinterpretations of this specific language help debtors who are seeking bankruptcy protection? Those debtors contend that the student loans they borrowed did not provide an “educational benefit,” and thus are not subject to the extreme hardship requirement for discharge. Examples of cases in which debtors have successfully argued that their loans were not made for an educational benefit include those “obtained to attend schools without accreditation or to study for a bar exam,” according to the article.
Help for a Relatively Small Proportion of Student Loans Borrowers
While it is certainly good news for student loan borrowers who took out loans to pay for for-profit colleges that were not accredited, the article underscores that “the argument applies only to a slice of the private student-loan market, which makes up less than 10% of the more than 1.3 trillion in outstanding student debt.” The majority of student loans are federal, and debtors with federal student loans have not yet been able to reinterpret the language of “educational benefit” in a way that allows them to discharge their debts without proving an extreme hardship.
What impact will the recent debtor wins have on future bankruptcy proceedings? In immediate terms, those wins are good news for debtors who borrowed money to pay for unaccredited colleges that did not provide a sufficient education—and there are many of those debtors out there. If bankruptcy is an option for discharging those debts, some commentators believe that we will begin seeing a rise in consumer bankruptcy proceedings in connection with student loan debt. Chapter 7 nonbusiness filings have been on the decline since 2010, but those numbers could rise if bankruptcy becomes a better option for discharging student loan debt.
Contact an Oak Park Bankruptcy Lawyer
If you have questions about student loans and consumer bankruptcy, an experienced bankruptcy lawyer in Oak Park can speak with you today. Contact the Emerson Law Firm for more information.
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