Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “Can I get rid of student loans by declaring bankruptcy?”
The Obama Administration unveiled on Tuesday what it dubbed a “Student Aid Bill of Rights.” Among the proposals the administration is considering is a push for legislation that could enable borrowers to discharge student-loan debt through personal bankruptcy.
According to the Wall Street Journal, at least 713 people tried to discharge their student-loan debt last year. The Journal knows that because in order to discharge student-loan debt, a debtor has to file a lawsuit. Lawyers taking on a student-loan discharge attempts “typically charge several thousands [of] dollars” up front for an uncertain result, according to the Journal.
In order to succeed at getting student-loan debt discharged, a lawyer must convince a judge that the debtor will never be able to afford one’s monthly payments. Bankruptcy lawyers told the Journal that bankruptcy judges have issued a wide range of rulings in student-loan debt discharge actions, muddying the legal landscape with uncertainty.
Consumer advocacy groups have petitioned for years to allow some borrowers to discharge student-loan debts in bankruptcy, arguing that “many Americans” are “burdened by unsustainable student-debt loans for years, sometimes decades.”
The Obama Administration said Tuesday that it would like to stem the tide of student-loan defaults “and ease the nation’s student-loan burden.” The administration also suggested that some borrowers “borrowed under fraudulent circumstances,” but did not elaborate on those circumstances or indicate how many student loans may have been tainted by fraud.
The government is the primary student-loan lender, accounting for all but ten-percent of annual student loans. The administration did not say whether it believed its own lending programs were responsible for the “fraudulent circumstances” it referenced in its statement, or whether private lenders such as Sallie Mae, Wells Fargo & Co. or Discover Financial Services were to blame.
The administration also proposed setting up a system for borrowers to register complaints against their loan servicers—or the companies collecting their payments—and the servicers “would face stricter federal oversight and new rules…” that would require them to offer distressed borrowers better repayment terms, according to the Journal.
Bankruptcy experts warn that a change in the bankruptcy code to make student-loan debt dischargeable could have unintended consequences. Student loans are already considered risky by lenders because borrowers face minimal credit checks and are often unemployed. Student-loan creditors can balance these risks, however, against the bankruptcy code, which makes it extremely difficult to discharge the debt and therefore makes the debt more attractive to creditors.
Changing the bankruptcy law to allow student-loan debt to be discharged “would likely drive up taxpayer and lending-industry costs,” the Journal warns, because lenders will attempt to account for the added risk of a discharge by collecting higher fees on the front end of a loan.
That will make it more difficult for borrowers to get loans in the first place.
If you find yourself needing the services of an experienced Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with the best advice for your particular situation.
About the Author
Bryan Stone is a Partner with Arnold & Smith, PLLC, where he focuses his practice on all aspects of bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.
A native of Macon, Georgia, Mr. Stone attended the University of Georgia, where he earned a BBA in Banking and Finance, and Wake Forest University School of Law, where he obtained his law degree.
Following law school, Mr. Stone relocated to Charlotte, where he currently serves as Chair of “Bravo!” – a young professionals organization associated with Opera Carolina – and founded the University of Georgia Alumni Association of Charlotte.
In his spare time, Mr. Stone enjoys perfecting his barbeque skills for the annual “Q-City BBQ Championship” and playing softball in the Mecklenburg County Bar softball league.
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