EDWARDS LEGAL OFFICE, PLLC
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One of the unfortunate realities of the U.S. bankruptcy code is that student debt is very difficult to discharge in bankruptcy.
During the pandemic, federal student loan borrowers received relief in the form of legislation that allowed borrowers to stop paying on their federal loans with no interest accruing on the balance. Private student loan borrowers did not receive the same relief. Additionally, private student loan borrowers did not have access to the same protections that federal student loan borrowers had, such as manageable interest rates to reduce or pause payments or opportunities for repayment assistance. This is a point of much suffering for today’s students who are saddled with tens of thousands of dollars in debt.
HOW BANKRUPTCY CAN HELP WITH STUDENT LOAN DEBT
Chapter 13 bankruptcy reorganizes debt so you can pay an amount you can afford. As an example, your student loan requires you to pay $2,500 a month but you only make $3,000 more a month. By declaring bankruptcy, you may be able to reduce your monthly payment to an affordable $200 a month. In essence, bankruptcy forces your lender to accept what you can pay, not what they want you to pay.
That said, this strategy does not reduce your overall debt; it merely kicks your student loan down the road. Eventually you will need to pay the whole loan. This strategy buys you time for your financial situation to improve.
The primary benefit of Chapter 7 bankruptcy for parents or students is its ability to completely discharge other debts, like credit card debt and medical debt. If you no longer have credit card payments every month, you can use that money to pay outstanding student loans.
The Current Student Loan Debt is…Staggering
The student loan debt in the United States is staggering. In 2022, the total amount was calculated at $1.7 trillion. The law that prevents most student loan obligations from being discharged through bankruptcy allows financial institutions to pursue borrowers for years, even decades, after they have left school. Some people are burdened by education loans even in situations where they never earned a degree. Student loans continue to accrue interest and penalties over the years, often resulting in lawsuits for amounts much higher than what was originally borrowed.
Insurmountable Student Debt has become Commonplace
Borrowing large sums of money for college has become an increasingly common occurrence. Many families assume that the student will graduate and land a high-paying job. Lenders lure students and families into accepting large student loans, sometimes exceeding $300,000 by graduation, by assuring the students that upon graduation they will have a lucrative job with several years in which to repay their loans. However, this is not always the case. There are many factors that can prevent a student from finding a job in their chosen field or even graduating school at all. Even those who find jobs, might not earn enough to make timely payments on their loans.
Some Student Loan Debt is Now Dischargeable
The US Department of Justice has issued a guidance for their department attorneys regarding any student loan bankruptcy litigation. Read it here.
CaseText
https://casetext.com/case/crocker-v-navient-solutions-llc-in-re-crocker
Consumer Financial Protection Bureau
Fox Business
https://www.foxbusiness.com/personal-finance/private-student-loans-discharged-in-bankruptcy
If you need legal representation and want an attorney who will compassionately listen and be responsive to your needs, please contact or call, EDWARDS LEGAL OFFICE at 806-621-1585.