Bankruptcy Lawyer | Refinancing Student Loans To Avoid Bankruptcy (Pt. 1)

Bankruptcy Lawyer | It can be very difficult, if not impossible, to discharge student loans through bankruptcy. But if you are suffering under overwhelming amounts of debt, there are options for you including debt consolidation of your other debt, and also bankruptcy.

Bankruptcy Abuse Prevention and Consumer Protection Act

In 2005 the bank lobby enacted the Bankruptcy Abuse Prevention and Consumer Protection Act. This act essentially sealed the fate on private student loan debt – making it almost completely (except for extreme cases) nondischargeable in bankruptcy. Prior to 2005, only federal student loans were difficult to get discharged.

That change quickly meant a lifetime of indentured servitude to student loan debt payments for American families who had taken out loans to ensure the well-being of their college-bound children. Once one of those children graduated from college they were soon met with a struggling job market that could offer very little in terms of employment. Thus, the interest on the loan piles up. In extreme cases, this leads to default. But what’s most frustrating in all of this is the fact that this debt is not dischargeable in bankruptcy, and worse, it is hardly ever forgiven.

No “Re-Start” for Those with Student Loans

Even mortgage debt is dischargeable in bankruptcy and through foreclosure. While not ideal, families are able to re-start. But with student loans, there’s no sense of a “re-start.” This form of debt cannot be discharged, and even worse, banks and debt collectors can get a lien on not only the student’s home, but also the parent’s home (if they co-signed for the loan) and garnish wages and garnish bank accounts.

Privately Held Student Loans

Private lenders — banks, credit unions, and other financial firms that provide student education loans — often take a lot of flack for being unwilling to negotiate with borrowers struggling with repayment. Borrowers are often at the mercy of these private lenders who hold 8 percent of the $1.18 trillion student loan market due to the fact that, according to lenders, student loans are packaged into securities and then sold to investors, thus creating restrictions on the contracts. These restrictions make it hard for lenders to adjust the terms of the repayment for borrowers.

When Are Student Loans Dischargeable?

Student loans are only dischargeable in bankruptcy if you can prove to a judge that you have an “undue hardship” that makes it impossible for you to pay your debt. Examples of an undue hardship include a disability that is severe enough that it prevents you from working.

Statistics to be Aware of

A lot of people that have student loan debt who file bankruptcy do not ask for their loans to be forgiven because they have heard it is impossible. Here are some statistics you must know:

  • According to a Harvard law school study, 99.9% of bankruptcy filers that have educational debt don’t ask for forgiveness.
  • 40% of debtors who do request for relief from student loans in bankruptcy are granted partial or total discharge of the student loans.
  • Every year 70,000 debtors that file bankruptcy actually qualify to discharge some or all of their student loan debt. – Orlando Bankruptcy

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