Chapter 7 Student Loan Debt Non-Dischargeable
A Chapter 7 bankruptcy filing does not discharge student loans. Currently, the only way to acquire a discharge for federally secured debt is to qualify for """"undue hardship"""" - a designation that the government is extremely reluctant to grant. In one case, a man who became blind as a result of an illness was denied the designation, whereas in another, a couple who were both full-time employees and worked with students with special needs received student loan debt forgiveness after petitioning for undue hardship.
These instances illustrate how difficult it can be to discharge student debt. Too frequently, debt accompanies its bearers through all financial difficulties and sometimes even to the grave. There are several financial hardship protections for federal student loans, including forbearance, deferment, and income-based graduated repayment programs. However, for many debtors, the protections provided by bankruptcy are the best way to cope with overwhelming debt.
One proposed solution would prohibit the discharge of certain qualified student loans in Chapter 7 while permitting the discharge of the remainder. This would ensure that loans with fair repayment terms, reasonably low interest rates, and flexible repayment options would be protected from discharge in bankruptcy, while certain private loans with higher interest rates would not be covered. These would be placed in the same category as credit card and medical debt, both of which are entirely dischargeable.
Such a program would necessitate a level of openness from private student loan servicers, including upfront disclosure of interest rates and subjecting lenders to the same standards imposed on credit card companies. It would be a significant step toward solving the problem of student loan debt in this country. The best action you can take is to educate yourself on the nature of the loans and determine whether the debt is worth the investment. Changing the requirements for discharge could assist debtors in making better decisions regarding their financial destinies.""
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