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Could Bankruptcy Rules Regarding Student Loan Debt Change?

On Behalf of | Nov 2, 2016 | bankruptcy

With $1.2 trillion in federal student loan debt, there is no question that this is a serious problem. 7.5 million borrowers are severely behind in their payments, with few options for overcoming this financial burden.

Now, according to an article from United Press International, a case being reviewed by the First Circuit Court of Appeals may lead to major changes in how bankruptcy courts address this debt, potentially giving debtors a way out of this financial predicament.

Bankruptcy And The Rule Of Undue Hardship

Technically, student loan debt can be discharged in bankruptcy, provided that the borrower can prove that the debt creates an undue hardship. The problem is that there is no clear definition of what that means. Without a clear definition, it is often perceived as an impossible standard to meet.

Asking The Critical Question

The case being reviewed by the First Circuit Court of Appeals hinges on what should be a simple question. Robert Murphy, the debtor who is pursuing the case, is simply asking for a definition of undue hardship in the context of student loan debt.

Due to unemployment, his student loan debt has grown to $246,000. He is now 65 years old. According to his calculations, if he found a job that paid him $50,000 and he made payments on his student loan debt until he turned 77, he would still have a balance of $500,000, thanks to interest. Does that qualify as undue hardship?

The court’s answer to this question will not only impact Mr. Murphy, but may reverberate through bankruptcy cases nationwide, possibly opening a door to many other people who are struggling to pay back student loan debt.

Do Not Give Up

Even under the current rules, you may want to consult with an experienced bankruptcy lawyer if your student loan debt has grown uncontrollable. You may potentially have other debt could be eliminated through bankruptcy or there may be other options that are worth exploring. Furthermore, a dedicated bankruptcy lawyer will be up-to-date on any legal changes that could impact your case. 

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