Student Loan Treatment In Bankruptcy Questioned

Grand Law Firm

Student loan debt can be one of the most difficult financial concerns for graduates in Louisiana and across the country. There are over 40 million people in the United States who owe approximately $1.4 trillion in outstanding student loan debt.

While the amount of student loan debt can loom large for each of these individuals, this kind of debt also carries another unique burden: Unlike credit card debt, mortgages and other types of debt, the money owed on student loans cannot be discharged in bankruptcy.

This policy began in the 1970s and has been strengthened over the years by a number of subsequent laws. Testifying before the Senate Banking Committee in March 2018, the newly appointed chair of the Federal Reserve Board seemed to question the reasoning behind this restriction in comparison to other types of debt. Student loan debt stands alone in this restriction, and there is not a clear reason for this limitation. After years of laws that prevent student loans from being discharged in bankruptcy, the Department of Education is seeking input on how student loans should be treated in bankruptcy.

While various judges and lawyers have worked to enable creative solutions to overwhelming student loan debt, there is little chance to deal with the issue in any widespread way without changes to the law made by Congress. The Fed Chair noted in his testimony that widespread inability to pay student loans can have an overall negative effect on the economy.

While student loan debt cannot be discharged in bankruptcy, it may be possible to include student loan payment management as part of a Chapter 13 bankruptcy. Chapter 13 may also help stop collection calls, delay payments and reduce the total of the monthly payments due during the bankruptcy plan. A bankruptcy lawyer might provide advice and representation for people struggling under the weight of overwhelming debt, including student loan debt.

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