While filing for a personal bankruptcy can lead to a new financial start, there seems to be an unfair disadvantage to those with student loan debt. However, a new report calls for changes to the bankruptcy laws to allow for more former students to be able to discharge all — or at least some — of their student loan debt.
Right now, when a person files for bankruptcy, things like credit card debt and medical bills can be discharged through the process. However, when it comes to student loan debt, unless a person is able to prove “undue hardship” — which is almost impossible to prove — that debt cannot be discharged through a bankruptcy.
Many bankruptcy attorneys are concerned about this, claiming that with the high cost of college and subsequent interest rates, many former students are seriously struggling, and the problem seems to only be getting worse.
In fact, according to a recent report by the National Association of Consumer Bankruptcy Attorneys, U.S. residents have more than $1 trillion in debt. This is higher than the $798 billion in credit card debt that we so often hear about.
Looking to the future, if something is not done, some fear this student loan debt could end up being to the economy what the current foreclosure crisis is.
“Take it from those of us on the frontline of economic distress in America,” one attorney said. “This could very well be the next bomb for the U.S. economy.”
The hope is that in the future, changes are made to allow for student loan debt to be included in a bankruptcy, to therefore give those former students the same chance to financial freedom that others going through bankruptcy have.
Source: USA Today, “Bankruptcy lawyers: Student debt is looming economic bomb,” James Goodman, Feb. 8, 2012