Bankruptcy for Student Loans Could Change

Currently, it is difficult but not impossible to have student loans discharged in bankruptcy. Given the high number of consumers with substantial student loan debt, however, many consumer advocates have urged lawmakers to reconsider the U.S. Bankruptcy Code and the ways in which it impacts debtors who are trying to have student loans discharged in Chapter 7 bankruptcy. According to a recent article in MarketWatch, new recommendations from the American Bankruptcy Institute (ABI) Commission on Consumer Bankruptcy could result in changes to how student loan debt is handled in consumer bankruptcy.

Bankruptcy Numbers May be Low Because People are Unable to File
The report focuses in part on the high number of people with student loan debt and the potential relationship to the decline in bankruptcy proceedings. Those who argue that current bankruptcy rules work well and should not be changed to make it easier to discharge student loan debt in bankruptcy point to the fact that the total number of consumer bankruptcies has declined in recent years. In other words, if fewer people are filing for bankruptcy, the reasoning is that there must be less need to have debts discharged through bankruptcy. However, the ABI report suggests that the reason for fewer bankruptcies might be quite different.

Rather than a declining rate of consumer bankruptcy due to a declining need, two of the most prominent reasons that consumers may be avoiding bankruptcy are much more problematic. First, the report suggests that consumer may be unable to afford bankruptcy: “Some people, already deep in the red, couldn’t afford to file for bankruptcy because the legal fees and court costs were too much.” Second, and related specifically to student loan debt, the report intimates that more people have unmanageable student loan debt but are avoiding bankruptcy because they see their student loans as a “major obstacle to . . . getting a fresh start in bankruptcy.”

Report Makes Legislative and Judicial Recommendations for Student Loan Debt in Bankruptcy
The ABI report recommends that federal legislators make revisions to the U.S. Bankruptcy Code—which has not been revised since 2005—to account for the burden of student loan debt and the difficulty of discharging student loan debt in bankruptcy. Specifically, the report suggests that private student loan debt should be eligible for discharge.

Yet as the MarketWatch article emphasizes, even if federal lawmakers cannot agree to changes to the U.S. Bankruptcy Code, there are other options that may become available to consumers with student loan debt. To be sure, the ABI report makes “suggestions on how judges could interpret the current bankruptcy code in a way that could help struggling borrowers looking to have their student loans discharged.” In order to treat student debtors differently, however, more consumers need to take a leap of faith in filing for bankruptcy in order to grapple with student loan debt. According to one of the ABI commissioners, bankruptcy judges “need cases in front of them to do that.”

Contact a Bankruptcy Lawyer in Oak Park
If you are struggling to repay student loans, you may be able to have those loans discharged in a Chapter 7 or Chapter 13 bankruptcy filing. An experienced Oak Park bankruptcy attorney at our firm can discuss your options with you. Contact the Emerson Law Firm today for more information.



See Related Blog Posts:

Consumer Bankruptcy Law Needs Fixing, Advocates Say

U.S. Supreme Court Hears Arguments About Debt Collection After Consumer Bankruptcy Discharge

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