Starting Tomorrow, Discharging Student Loan Debt By Declaring Bankruptcy Will Be Much Harder To Do, But Not Impossible
If you've been thinking about using bankruptcy to get rid your student loan debt(s), you better be prepared to prove that your financial situation is extremely dire. That's because changes to the nation's bankruptcy laws that will take effect tomorrow will make it far more difficult to discharge student loan debt using either Chapter 7 or Chapter 13 bankruptcy protection.
Some folks in the forums I frequent think that discharging student loan debt will be impossible once the changes take effect tomorrow, but this is not the case. In fact, you will still be able to discharge student loan debts with either Chapter 7 or 13, but you must be really suffering financially, or, as the lawyers like to put it,
Of course, as with any legal battle, having a lawyer to represent you in bankruptcy court will drastically increase your chances of success if you decide to opt for bankruptcy protection.
It's really no wonder that these changes have been put into place. Back in the 1970's and 80's, certain unscrupulous college students would take out student loans in order to finance their college educations. They would then declare bankruptcy right after graduating from college and get their student loan debts erased. End result: a free education! So, as is usually the case, we all have to pay for the misdeeds perpetrated by a handful of scammers.
Some folks in the forums I frequent think that discharging student loan debt will be impossible once the changes take effect tomorrow, but this is not the case. In fact, you will still be able to discharge student loan debts with either Chapter 7 or 13, but you must be really suffering financially, or, as the lawyers like to put it,
"...paying the debt would cause the debtor 'undue hardship.'"And the burden of proof will be on you. To secure a "hardship discharge", you'll need to prove that you are, e.g. unemployable for some reason, or suitably underprivileged, or that there are really no jobs available for someone with your skills. Certain physical or mental disabilities may also be enough to convince a bankruptcy judge that you are worthy of a discharge.
Of course, as with any legal battle, having a lawyer to represent you in bankruptcy court will drastically increase your chances of success if you decide to opt for bankruptcy protection.
It's really no wonder that these changes have been put into place. Back in the 1970's and 80's, certain unscrupulous college students would take out student loans in order to finance their college educations. They would then declare bankruptcy right after graduating from college and get their student loan debts erased. End result: a free education! So, as is usually the case, we all have to pay for the misdeeds perpetrated by a handful of scammers.
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posted by Steve Brown | 10/16/2005 02:15:00 PM
11 Comments:
I consider this a really good move, since it will sort out the scammers from the real financially-challenged students. It may not eliminate all scammers, but it will definitely result in a decrease, since people who plans to scam will now think twice before getting a loan.
From one part yes, it decrease scamming. But the sad part is for people that really needed it, it will be much harder for them to prove their financial problems.
Actually, I was told by the Department of Education that I would be better off with back taxes or child support. They claimed that no bankruptcy judge has discharged a penny of studnet loan debt anywhere in the country since Bush took office anyway. My own loans are accruing interest (capitalized quarterly) at over $1000 a month. My PhD in the humanities will, it seems, never get me a job good enough to pay for the degree. It's already listed on my credit report as a debt. I will never get credit. I'm considered a security risk. I've been looking for a job - any decent job - for a year. An early consolidation of $30k is now $87k and the interest stays the same for life, even if reconsolidated later. I guess the idea is for blue-collar smart people never to get an advanced degree.
Hello Virushead:
> They claimed that no
> bankruptcy judge has
> discharged a penny of
> student loan debt anywhere
> in the country since Bush
> took office...
There is no doubt in my mind that this is true. But has anyone who truly deserved to have their student loans debts discharged been denied? That's what I would like to know.
> My PhD in the humanities
> will, it seems, never get
> me a job good enough to
> pay for the degree...
I understand your situation.
I used to work for a large law firm in NYC. One of my co-workers was a trainer. He made a nice living (probably around $60-65K) teaching lawyers how to use the software on their computers (MS WORD, Excel, etc.) His educational background? A PhD in music from a college in the Midwest. He said that he had moved to NY to earn a decent living, as the best job he could find related to his advanced degree was paying $22K! $22K for a guy with a PhD!
We all have to chase the money these days just to make ends meet. Sad but true.
sad thing actually. while it's true that the scammers will have a harder time cheating the system, we should think about those people who are disabled or the ones who are really ill for some reason. For them it's an unnecessary hassle trying to "legally" prove the obvious fact that they're unable to pay. I have a friend... she has what we call a Chronic Fatigue Syndrome ... in this condition a patient feels so lifeless and tired that doing even some of the simplest of tasks becomes a chore... now think of the hassle that she'll have to undergo. hmmm....
Thanks for the article.I have outstanding student loans myself. Bankruptcy should be only for those in the most dire need and I have always believed that. Keep up the good work.
Meh. You can't them government for doing this. I'm sure tons of students use bankruptcy as an excuse to not pay off their debts. But in the long run, why would you want to, anyway? As far as loans and credit ratings go, you basically f--k yourself for the rest of your life.
I have been hearing that laws were going to be put in place to make bankruptcy harder to declare for a while now. I didn't know that this was going to effect student loans tho. I also I know that theres a group people who get student loans and them leave after a motn of school. This is a hard call to make, but we definitely don't need people wasting our student loan money.
I heard the stories about filing bankruptcy after school in order to get out of payments. I also heard of another trick: They say they are depressed due to the extreme financial burden they are facing at such a young age; without the background and experience they do not get paid the higher salaries; therefore, the only opportunties are the lower paying jobs. Due to this problem, their depression gets worse -- they go the hospital, get a doctor to say they are unable to work due to depression/sucidal thoughts -- bingo ! They can now go bankrupt and STILL not pay the loan. After bankruptcy, since they don't owe any money, the depression lifts -- and yep BINGO again -- they now qualify for a great job with their higher education.
Wish I'd thought of that !
Deerfern
basically,if you want to get a college degree don't make plans to have a family, a house, or a car that you don't have to fix once a month. I married my husband and he has a private loan where the intrest rate climbs in accordance with the prime rate and he also has a federal loan altogether? His loans are pulling us apart. I fear that we are going to be forced to be homeless just to pay off his student loan debt. Exaggeration? I don't think so.
It's obvious from reading many of these comments, most people here have neither amassed a significant amount of student loan debt, or are living in some fantasy land of being able to finance your own college education by "working while you're in school." Yeah, maybe in the late 80's you could work and payoff your schooling as you went, but not today.
I'm facing payments of over 525 dollars a month for the next 5 years, after that it drops to around 450 for another 8 years, then 250 bucks for another 10 years. So in 22 years I'll be debt free. I have a Master's degree in Psychology. I make a decent wage, but when you're forking out 500 plus a month, the wage becomes quite average. More power to the people who scam a system that could care less for the people it serves.
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