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Report suggests relaxing student loan treatment in bankruptcy

At present, the United States Bankruptcy Code only allows debtors to have their student loans discharged in bankruptcy if those loans impose on them undue hardships. Proving that a student loan imposes an undue hardship on a debtor is challenging and not always possible, even when a debtor is buried under the weight of their obligation.

Recently, though, experts and professionals in the field of debt and bankruptcy issued several recommendations for changes to the laws that may help student loan debtors out.

One of those recommendations includes allowing more individuals to be able to discharge their student loan debts in bankruptcy. These individuals would include but may not be limited to those receiving Social Security or Veterans' benefits, as well as those who are living in poverty.

Though bankruptcy judges have some discretion over how they interpret the financial situations of student loan debtors, bankruptcy courts have not been seeing many student loan-based bankruptcies. Experts who contributed to the report suggest that some student loan debtors cannot afford the associated costs that accompany bankruptcy filings and that student loan debt has not historically been a problem that bankruptcy courts have had to manage.

In the United States, individuals hold more than $1 trillion on their student loans. Many of those borrowers will face significant financial problems when they are asked to begin repaying what they owe to their lenders. Student loan debt is a growing problem in the country and as demonstrated by these recommendations, lawmakers may need to address how such obligations are treated under the standing bankruptcy laws.

Debtors struggling to repay any outstanding debts can always seek legal counsel to learn more about their debt relief and bankruptcy options.

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Kenneth C. Rannick, P.C.
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