Did you hear about the 31 year old Ohio man who was able to get rid of $89,000 in student loan debt???
Wait a minute, I thought student loan debt was never dischargable in bankruptcy. What happened?
This is what happened. Federal law requires those who wish to erase student loan debt to prove that repaying it will cause “undue hardship.” That usually involves convincing a federal judge that there is a “certainty of hopelessness” to your financial life. In Ohio, the debtor, Doug Wallace, was able to do that. Diabetes had rendered him legally blind and unemployed only a few years after graduating from college.
So, is that what it takes to discharge your student loans? The certainty of hopelessness? Yep, that’s about it. You know what Mr. Wallace said about this? “It’s like you’re not worth much in society.”
It wasn’t always like this. Before 1976, debtors were able to get rid of student loans in bankruptcy just a they could with credit card debt or auto loans. But, Congress changed the laws after it was reported that some new doctors and lawyers were wiping away their student debt. Well, ok, that seems wrong. But, requiring utter life-long hopelessness? Well, that seems wrong, too.
Reform may be on the way. For the past three sessions of Congress, Senator Dick Durbin (D-Ill.) has introduced legislation to allow discharge for private loans in bankruptcy. Durbin says the current law treats students who face financial distress the same way as delinquent taxpayers or dead-beat dads trying to discharge their child support debts.
“This harsh treatment of students in the bankruptcy system was built on the false premise that students were more likely to abuse the bankruptcy system,” said Durbin, “yet there is no evidence…to support this assumption.”
But this legislation, according to Durbin, is “going nowhere.” Banks already had lined up against it, despite the lack of progress to get even a committee vote.
Some analysts are warning that lenders might raise interest rates on private student loans “to reflect additional risk.”
But Wallace said advocates are not seeking special treatment. “We’re fighting for basic consumer protections,” he said.
Are you thinking about bankruptcy? Are you unable to work due to a disability? Call the Law Office of Debra G. Simms. We offer a consultation for all bankruptcy related matters.
Toll free: 1-877-447-4667
