As Student Debt Bubble Grows, Lawmakers May Have to Rethink Requirements for Discharging School Loans
In many cases, consumers with overwhelming debts are surprised at just how quickly bankruptcy can help them get back on their financial feet.
But in recent years, there's been one form of debt that bankruptcy can't readily relieve: student loans.
Current bankruptcy laws require what's known as an "undue hardship" to discharge student debt. Debtors must prove to judges that they have a "certainty of hopelessness" that makes paying back the debt highly unlikely, regardless of the economy.
This makes eliminating student debts an option available to only people with debilitating disabilities - and even those with true hardships must endure years of waiting to find out if their situation warrants the cancellation of loans.
Because lawmakers never defined exactly what qualifies as an undue hardship, it's been up to bankruptcy judges to make their own determinations, which are often done inconsistently.
It wasn't always this way.
Just a couple decades ago, it was possible to discharge student loans in nearly the same manner as credit card debt or car loans. But fearing that successful law and medical school graduates would take advantage of the system to do away with expensive loans, lawmakers have since tightened the law.
They've been able to get away with it - until now. As the cost of college tuition soars and the likelihood of finding a job out of school plummets, student debt poses a real hardship to a growing number of Americans.
In recent years, bankruptcy and financial experts have cried out to lawmakers to change the law before the student debt bubble bursts, further damaging an already fragile economy.
It's impossible to say when or if a change will be made to help the growing number of consumers saddled with student debt. But for many college graduates, bankruptcy can still be a useful tool for financial relief.
Along with student debt, expenses like credit card debt, auto loans, and medical bills put additional pressure on consumers.
By relieving qualifying forms of debt through bankruptcy, it's possible to free up more money each month for static costs like student loans and the mortgage.
With the right bankruptcy plan, it may still be possible for struggling college grads to achieve the financial stability they went to school for in the first place.
To learn what bankruptcy can do for your financial situation, call the DebtStoppers Bankruptcy Law Firm at 800-440-7235. Contact DebtStoppers now for your free one-on-one debt analysis with a professional bankruptcy attorney in Atlanta, Chicago or Tennessee.
More Blog Entries:
Young Borrowers Make Up Majority of Underwater Homeowners: August 28, 2012
When the Price of Shedding Student Debt Is Hopelessness, by Ron Lieber, The New York Times