Now that student loan debts have become a $1 trillion industry, the need for better resolution options has become greater than ever before. The National Association of Consumer Bankruptcy Attorney is, yet again, calling for revision to the bankruptcy code to make handling student loan debts easier. Having been a big advocate for law changes, NACBA is asking for urgent action to be taken in order to gain control over this continually inflating debt problem.
Changing The Game
Before 1976, student loan debts were easily discharged in bankruptcy. Rules became more strict over the years but prior to law changes in 2005, some student loan debts may have been eligible for a Chapter 7 discharge if they were older than five years and creating financial hardship on the debtor. Since the 2005 law changes, getting student loan debts included in a bankruptcy case has been anything but manageable. In most cases, these debts are not admissible into the case, let alone receive a discharge. Only in extreme cases have student loan debts been allowed to become part of a Chapter 13 case in recent years.
The responsibility of obtaining help now rests on the hands of the borrower, who must prove they have made good faith efforts in repaying the debt and are experiencing undue hardship as a result of the debt, if they are to have a chance at resolving these debts. However, NACBA feels differently. In a report released last month, NACBA said, “There simply is no reason to allow private student loans to be treated differently from other types of unsecured credit. In fact, exempting these loans from discharge is likely to cause even more harm for borrowers.” Luckily, voices are being heard and there are currently two bills making their way through Congress that have the potential to open up private student loans for bankruptcy assistance.