Finally More Attention Paid to Discharging Student Loans in Bankruptcy

It’s been years now that I’ve been rattling on about the ability to discharge some student loan debt in bankruptcy. I’ve watched the discussion go from “it’s not possible” to “that’s interesting” to “you’re right.”

A Wall Street Journal article “Bankruptcy Becomes an Option for Some Borrowers Burdened by Student Loans” has finally moved this discussion forward a bit more.

The reporter observed, “Borrowers are beginning to win battles to erase some student loans in bankruptcy court, overcoming stiff obstacles that have generally blocked that path except in extreme cases of financial hardship.”

That is certainly true but it requires consumers to find bankruptcy attorneys who know how to deal with this type of debt and that’s like finding a unicorn. But in the future, more bankruptcy attorneys will be better informed and stop putting up road blocks or saying it’s not possible.

In June I wrote “A Bunch of These Navient Private Student Loans May Really be Eligible for Bankruptcy Discharge Today” and described how I felt these loans were ready to deal with in bankruptcy.

The article found, “This language has opened a window to cancel loans for students who argue their loans falls outside this category of debt. Such reasoning has been applied to loans obtained to attend schools without accreditation or to study for a bar exam.”

This need for more people to get educated about what is possible in the existing bankruptcy code to deal with student loans is critical. The article states, “Bankruptcies in and of themselves are on the decline,” said D.J. Rausa, a San Diego consumer-bankruptcy lawyer. “That may change if more and more people and bankruptcy lawyers get informed there are provisions in the bankruptcy code to manage student loans.”

Stay tuned for more positive changes in this area as more bankruptcy attorneys get up to speed.

Steve Rhode
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This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.