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What Would Happen If Student Loans Were Dischargeable in Bankruptcy?

The senate just blocked a bill that would have stopped the interest rates on student loans from doubling to 6.4%. You can read more about it here: http://www.cbsnews.com/8301-503544_162-57430060-503544/student-loan-bill-fails-as-senate-gears-up-for-protracted-battle/?tag=contentMain;contentBody

They are trying to find a way to solve the student loan issue because it is a large debt problem in the United States. You can read more of the stats in the article. Student Loan’s used to be dischargeable in bankruptcy until the mid 1970’s. Today, most people would say student loans are not dischargeable in bankruptcy. Technically, they are dischargeable in bankruptcy if you can prove that you are unable to work to pay off the student loan. This usually involves proving that you are disabled and that your disability will not allow you to earn any money. If you can prove this to a bankruptcy court, you can possibly discharge a student loan in bankruptcy. Most people would not be able to prove disability to the bankruptcy court. So, technically, it is possible to discharge student loans, but, practically, it is very difficult to do.

So, what would happen if they made student loans dischargeable in bankruptcy? Would all the people that have student loans be rushing out to a bankruptcy attorney to get their student loan discharged? This is very unlikely. People would still need to qualify for bankruptcy in order to get the student loan discharged. Having the student loan alone will not allow people to qualify for bankruptcy. The same rules would apply to qualifying for bankruptcy as they have for the past few years. Automotive loans are dischargeable in bankruptcy, but you don’t see all the people with car loans filing for bankruptcy just because it is dischargeable.

It would be interesting to see how discharging student loans in bankruptcy would affect the student loan lenders. Maybe the lenders would pay more attention to who they are lending to. Maybe they would try to limit their risk on student loans more just due to the fact that they are risking losing their money to bankruptcy if they lend to someone who does not have a good potential of earning the money in the future to pay them back. Maybe the lenders would interview borrowers or keep a close eye on their grades to make sure that the student is showing good progress in school and potential to earn in the future. Wouldn’t it be better this way? It may be a little more challenging to get a student loan, but it would be better for all parties involved.

Bankruptcy Law Professionals has offices in Riverside, Long Beach, and Tustin to serve you. Contact us for a free consultation at (855) 257-7671.

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