Michigan residents and others who have student debt may be familiar with the fact that those debts usually cannot be discharged in bankruptcy. The only way they can be discharged is if a student would experience an undue hardship if forced to repay them. While undue hardship is meant to be a high standard to reach, there is no specific criteria for determining what that looks like.
In testimony given to the Senate Banking Committee, the chairman of the Federal Reserve said that he doesn't understand why that is the case. Currently, 40 million Americans have student loan balances that total $1.4 trillion. Laws against discharging student loans were first passed in the 1970s, and efforts are underway today to ease these rules. However, it may take an act of Congress for meaningful change to occur.
In his testimony, the Fed chairman said that student loan debt can have negative consequences throughout a person's life. For instance, those who can't pay off their loans may have a lower credit score. However, the chairman acknowledged that there was little he could do about student loan debt in his current role. He did state that as student debt rises, it could hold back the growth of the economy as a whole.
Individuals who are struggling to pay their debts may benefit from filing for bankruptcy. Eligible debts may be discharged wholly in a Chapter 7 bankruptcy case or reorganized in a Chapter 13 case. Filing for bankruptcy might allow an individual to retain property such as a home or car as creditors may be barred from collection activities. Creditors may also be barred from contacting an individual while a case is ongoing. An attorney may be helpful in explaining additional benefits of bankruptcy and who may qualify for it.