By Bob Brooks
July 15, 2015
The Department of Education just released guidance on student loans and bankruptcy. Does this mean you can discharge a student loan in bankruptcy?
To answer that question, you first need some background. On the radio show, I always refer to student loan debt as the debt you can never walk away from. Although it is possible to challenge a bankruptcy court on student loan debt, it is virtually impossible to be successful. The attorneys for the lenders are notorious for tying cases up in court making it an almost impossible financially to get the case to the finish line.
So if you were going to attempt to discharge a student loan, then you better have the financial resources to fight it. Of course, if you are in bankruptcy court, you probably don’t have the resources. The attorneys take advantage of that small challenge.
The student bill of rights which was passed in March of this year requested that the Department of Education revisit student loan debt and bankruptcy and issue guidance to make it more of an option.
They just released guidance which offers some “light” guidance. Unfortunately, they were clearly doing the bare minimum not making creating the relief that was the intent of the request for guidance.
The National Association of Consumer Bankruptcy Attorneys (NACBA) and National Consumer Law Center, Inc. (NCLC) were not happy about the outcome and issued the following joint statement:
(in the fairness of time, I have included only parts of the statement)
“Last week, the Department of Education responded to the White House in the worst possible way by giving a green light to the loan holders’ aggressive strategy of fighting virtually every case in which undue hardship is claimed. Not only is this completely contrary to the intent of President Obama to find a way to help out more student loan borrowers suffering genuine financial distress, it will only serve to encourage loan holders and the Department’s contractors to be even more ruthless in systematically using their considerable legal might to crush any such filings under a mountain of appeals, delays, and other tactics.
Because federal law treats student loan debt as non-dischargeable in bankruptcy proceedings except in the case of undue hardship, borrowers can be burdened with this debt for a lifetime even if circumstances make it unlikely that the borrower will ever be able to repay.
The need for action with respect to the student loan debt crisis is urgent. Today’s response from the Department of Education enshrines the worst practices of loan servicers to ride roughshod over borrowers suffering real financial distress. The White House should instruct the Department of Education to reconsider its response and, instead, to adopt an approach that recognizes that a real crisis requires a real solution.”
So to answer your question probably much has not changed in the form of student debt relief. You have to remember this is nothing more than an entitlement based socialism program where the intent is to give everyone a college education because everyone is “entitled” to it. They don’t want to let you off of the hook no matter how bad things get. That is not an indictment against those who have borrowed money. It is an indictment of the system.
As I have always said borrowing money from the government is much like borrowing money from a loan shark. It was easy to get it and they own you until you pay it back. Isn’t that always the case when it comes to government run socialism programs?