Changes to student loan treatment in bankruptcy proposed

For many people in Michigan struggling with debt, student loans can contribute substantially to the burden that they face. However, this type of debt is set aside from other unrepayable expenses like credit card bills; unlike those debts, student loans are not dischargeable in bankruptcy. As student loan debt and defaults continue to be a major concern across the country, the Department of Education has solicited input about how student loans can be dealt with in bankruptcy in the future. Over 400 comments were submitted as part of the process.

Under current law, it is difficult for people struggling with student loans to discharge that portion of their debt, requiring a finding of undue hardship. However, many lawyers and advocates have argued for a change of the law that provides more rights and options for borrowers facing a mountain of student loan debt. In order to change the way these cases are treated, Congress would need to pass a new law to change the treatment of student loans in bankruptcy. However, the Department of Education has some discretion in how it deals with these cases.

Some experts have suggested that the Department of Education develop a standard for cases in which it will not contest a filing for undue hardship, including those in which the borrower lives under or near the poverty line. In addition, the phrase “undue hardship” has never been clearly defined, and some jurisdictions use a more lenient standards that could help more borrowers find relief.

Student loans are only one of the many types of debt that can wreak havoc on a person’s financial stability. From credit card debt to medical bills, unrepayable debt can seem to trap people in an escalating crisis. A bankruptcy lawyer may help people struggling with debt to find relief from bills and collection calls.