Thompson Law Group, P.C.

Consumer with student loan debt may benefit from bankruptcy

Student loan debt is at a record $1.35 trillion, and the situation may pose ominous threats to domestic economic stability. It is therefore puzzling to some why the United States Congress went to such lengths in 2005 to make it so much harder for consumers to discharge that category of debt in a bankruptcy proceeding. Nonetheless, the current status of student loan debt regarding bankruptcy in Pennsylvania and nationwide remains uncertain and difficult, but with indications of more flexibility ahead.

There is hope for change, but it appears to be coming slowly and won't happen in the midst of an election campaign. In the meantime, it may still be beneficial for some persons with student loan debt to file a personal bankruptcy. This is due to the substantial debt relief they can get relative to their unsecured medical, credit card and personal loan debt. If a person or married couple are overwhelmed by unsecured debt, the debt may be eliminated fully and permanently in a Chapter 7 bankruptcy.

Furthermore, a Chapter 7 may be a life-saving way for homeowners to save their home while eliminating a tremendous load of unsecured debt. The real estate can be retained in a Chapter 7 if it is being paid current. It must also not have too much equity as set forth in exemption sections provided by law. Where a large debt load is making it harder and harder to keep up the mortgage payments, erasing that debt may be the key to starting fresh, preserving the marital home and moving forward to reestablishing good credit.

The executive branch of the federal government has been trying to ease the bankruptcy rules so that more student loans can be discharged. In addition, some bankruptcy judges are issuing decisions that interpret the requirement of "undue hardship" more liberally. Due to the changeability of the situation, it is recommended that interested persons consult with a consumer bankruptcy attorney in Pennsylvania to determine their eligibility to file and the status of the law and options that are available.

Source:, "Why student loans are harder to write off than credit-card debt", Neal Hutchens and Richard Fossey, Sept. 3, 2016

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