School loans and bankruptcy are getting some attention paid to them courtesy of President Obama and his administration. A recommendation in a report filed by the Education Department and the Consumer Financial Protection Bureau would basically allow for greatly increased student loan relief programs thanks to the ability to include school loans and bankruptcy together.
Any student loan lawyer will tell you that school loans and bankruptcy are a tricky issue, often without great resolutions. In today's economic climate, the rising costs of continued education and the struggling job market both contribute to making life exceedingly difficult for many students.
In Chapter 7 bankruptcy, school loans are not dischargeable. This means that even if you did file bankruptcy and get many of your debts discharged, you would still be on the hook for your student loans. The only case where they would be discharged is if you could prove "undue hardship" which essentially means you cannot afford to pay for a minimum standard of living along with your student loans, and your financial picture isn't going to improve in the future.
However, the recommendation from the Obama administration is that private school loans (i.e., those not issued by the federal government) become included as debts which can be discharged. Currently, there is about $150 billion of outstanding student debt from private lenders, which accounts for about 15% of the total outstanding student debt.
Today, depending on your circumstances a student loan lawyer may recommend filing Chapter 13 bankruptcy to help your financial picture. With the structured payment plans in a Chapter 13 case, the amount you can pay each month would be split between debtors, lowering your total monthly obligations. While you would still have your educational loans at the end of the payment plan, you would likely have many less obligations, and a healthier overall slate.
Other options for school loans and bankruptcy include various student relief programs, debt consolidation programs, the discharge of other debts through Chapter 7, and so forth. But it appears that there may be some relief coming around the corner if this recommendation gets put into action by Congress, so if you're a former student struggling with your loans, stay tuned to the news for more information on this topic.
Before determining the best course of action for yourself, you should always seek out seek out a student loan lawyer in your state. However, you should certainly be optimistic that there may finally be improvements coming and increased flexibility for student loan relief programs.
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