On behalf of Ahmad Tayseer Sulaiman
Bankruptcy can be an indirect solution to student loan debt.
One of the financial problems faced by young people today is student loan debt. Many find that this is unavoidable, as a person often needs to go to college to get a higher paying job in today's world. However, upon graduation, there are no jobs available, due to the slowly recovering economy.
Recently, the student loan debt crisis has been a recurring topic in the media, for good reason. Outstanding student loans in the United States have increased to over $1 trillion-more than what Americans owe on their credit cards and car loans combined. In Illinois, the problem has gotten so bad that the legislature recently passed House Resolution 620. Under this resolution, the legislature formally asked Congress to amend the bankruptcy rules to make it easier to forgive student loans in bankruptcy.
Bankruptcy and student loan debt
Currently, student loan debt cannot be discharged in bankruptcy in most cases. However, contrary to popular belief, this was not always the case. Student loans were completely dischargeable in bankruptcy, until the mid-1970s. Since that time, Congress has periodically enacted legislation that has restricted the discharge of student loans. Eventually, in 1998, Congress made federal student loans nondischargeable.
Under the law as it currently stands, private student loans remain dischargeable, but only in very exceptional cases. The law requires those seeking a discharge to prove that repaying the loans would constitute an undue hardship.
- Although there are differences in interpretation of the law, most courts require borrowers to prove:
- That he or she has tried to repay the loan in good faith;
- That due to the outstanding debt, it would be impossible to maintain a minimum standard of living; and
- That this financial situation is likely to persist unabated for the loan's repayment period.
Although most borrowers can prove the first two elements, most fail at the last element, as it is difficult to prove that the borrower would likely never find a job or other source of income that would eventually allow the loan to be repaid. As a result, the discharge of private student loans is largely reserved for those with serious injuries that render them unable to work.
Consult an attorney
If you are struggling to pay your student loans, it may seem that bankruptcy would not be able to help, but this is generally not the case. Bankruptcy can help by relieving you of your obligation to pay many other types of debt such as credit cards or medical bills. Once relieved of your other debt, you can devote more of your resources to repaying your student loans.
In addition to bankruptcy, there are several other ways to manage student loans. An experienced bankruptcy attorney can inform you of your options and recommend one that would best address your unique situation.