Currently, there are certain types of debt that you can resolve through bankruptcy and certain types of debt that you cannot. One type of debt that is typically not dischargeable nor negotiable in a bankruptcy proceeding is student loan debt. Student loan debt is a massive burden for many young people, and the fact that it is almost impossible to eliminate in bankruptcy is a growing problem.

Lawmakers are currently trying to tackle the issue with the Fairness for Struggling Students Act of 2013. According to Barrons, this Act faces a tough fight due to widespread opposition. Further, similar laws have not been able to pass. Still, our Columbia, SC bankruptcy lawyers will be closely watching the debates surrounding this law: If it passes it would have a major impact on relieving one of the most crippling forms of debt that young people face.

The Bill to Make Student Loan Debt Bankruptable

The Fairness for Struggling Student Act of 2013 has been proposed by Senate Democrats and addresses only certain types of private loans. Government loans would still not be able to be discharged or changed in a bankruptcy proceeding. The change, however, could still make a big difference even though many students do have government loans.

Private student loans tend to have higher rates than government loans, which makes them more burdensome to a student who is struggling with debt. Private student loans also cannot be consolidated with government loans, so students may find it difficult or impossible to refinance and/or lock in rates on these loans. Furthermore, government loans often offer a variety of repayment options that can make them more affordable, including payment programs tied to income that allow the remaining balance of debt to be discharged after 25 years of making payments. Private loans may not offer the same level of flexibility in repayment and may not be as generous as far as deferment, forbearance or loan forgiveness.

All-in-all, private loans, therefore, add up to be a bigger problem for many young people who are facing debt troubles than do government loans. Making these private loans dischargeable in bankruptcy, therefore, could free some students who may spend a lifetime struggling to pay loans that they can never eliminate.

Of course, there are some important counterarguments, including the fact that it could hurt the student loan market if the bill passes by significantly reducing the availability of private loans. However, it is clear that something needs to be done for all of the students who face such debt.

Can You Ever Discharge Student Loans in Bankruptcy?

Since the bill may not pass, students may be concerned about when – if ever- you can discharge student loans in bankruptcy. The answer is that you can discharge some student loans under very rare circumstances if you can prove an undue burden.

Usually, this applies only in limited situations such as when you have become completely and permanently unable to work in a way that would allow you to repay the loan (like if you became permanently disabled). If you have any possible hope of being able to make an argument for the discharge of your student loan debt, you will need to work with a qualified bankruptcy attorney who can help you to build a very compelling case for the court. For others who face high student loan debt, filing for bankruptcy can discharge other financial obligations, which can then allow you to focus on reducing your student-debt burden.

If you are considering bankruptcy, contact the Columbia, South Carolina attorneys at Matthews & Megna today at 877-253-7705.