Bankruptcy Lawyer Bryan W. Stone answers the question: “What are my alternatives to bankruptcy?”
As anyone with student loans knows, educational debt can cause serious financial stress for even the thriftiest of individuals. With the average borrower in 2016 facing some $37,000 in student loans, it can be hard to know how best to tackle such a big pile of debt. Though payment plans and income-based loan forgiveness programs have been helpful, the reality is that many millions of people continue struggling with how to make ends meet and student loans represent a large part of that problem.
In most circumstances, if a person is trapped with high levels of debt there’s a fairly sensible path forward. Most people start by negotiating with the lender, seeing if payments can be brought down or suspended temporarily. If that doesn’t work, many consider loan consolidation options to potentially lower interest rates. Finally, when things become truly untenable, bankruptcy offers a solution, allowing individuals to escape debt that has grown too large to be reasonably repaid.
Sadly, this path isn’t open to the millions with student loan debt. Though the student loan industry has swollen to more than $1 trillion, rules that have been written into the federal Bankruptcy Code exist to deny borrowers an escape hatch. Unlike almost all other forms of debt, student loans are largely exempt from discharge, meaning borrowers are stuck making payments regardless of how dire their financial circumstances.
Thankfully, the problem of student loan debt has begun to get attention and lawmakers are starting to wake up and pay attention. As millions of families struggle, their elected officials have begun to take note and are considering proposals to reform the Bankruptcy Code and eliminate a special privilege extended to educational lenders, but few others. The political climate today, where populism appears ascendant, may encourage formerly fringe legislators to take bold action.
One proposed amendment to the Bankruptcy Code being floated by Democratic lawmakers would allow borrowers to include student loan obligations in a bankruptcy filing if the lender failed to offer a debt relief repayment option. Currently, the federal government offers a “pay as your earn” option to borrowers, linking monthly payments to a certain percentage of the borrower’s income. Should the amendment become law, a private lender who failed to offer similar repayment programs could have student loan debt discharged in bankruptcy.
Others have gone a step further and are proposing that even lenders offering the debt relief programs should have their loans subject to bankruptcy discharge. Under this approach, every educational lender, including the federal government, could see loans discharged if borrowers were truly unable to afford continued payments.
One problem with both approaches is the tremendously powerful financial industry that supports the existing restrictions. Experts say that if the lenders fear that change is likely they may take small steps, like increasing availability of repayment relief programs, to try and avoid more substantive changes. After all, as the student loan industry has ballooned, these companies stand to gain tremendously if the debts can’t be discharged. Expect them to put up a real fight before they let billions of dollars in potential profits get taken away.
If you are contemplating bankruptcy in the Charlotte area, 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 legally sound advice for your particular situation.
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