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Redefining "Undue Hardship" May Make it Easier to Discharge Student Loan Debt in Bankruptcy

Posted By Allmand Law Firm, PLLC || 28-Oct-2015

Student loan debts have only ever been dischargeable by bankruptcy under the most dire of circumstances, but student loan write-offs may soon be easier to accomplish if the Obama administration’s proposal is approved.

The Department of Education recently released a report identifying solutions they believe will benefit people who are struggling to repay their loans. This would involve the removal of many of the barriers to writing off student loans in a bankruptcy filing. It would also extend some of the same borrower protections included in federal loans to private student loans.

The Department of Education is now reviewing its definition of the term “undue hardship,” which is currently the only way for people to petition to have their student loan debts discharged. Unfortunately, it has been left up to the courts to define what this means, resulting in some inconsistency. Typically, in order to prove undue hardship, debtors must be able to show that they have made a good faith effort to repay their loans, but are currently experiencing some long-term problem that prevents them from being able to repay (for example, a disability or long-term illness). This method is known as the Brunner test.

According to an article written by Stephen Dash, the problem with this test, which many feel is too narrow and out of touch with the times, is that it rules out bankruptcy as an option for students who accumulated debt from dubious and expensive for-profit schools that did little to increase their earning power. It also prevents borrowers nearing retirement age from obtaining debt relief on loans they are not likely to ever repay.

The Obama administration plans on broadening the definition of “undue hardship” in order to increase a person’s chances of receiving a discharge, which has always been notoriously difficult.

It has long been argued that leniency towards student loan debtors undermines the solvency of the student loan program and could encourage abuse of the system. However, no one benefits from forcing borrowers to keep making payments on loans they may never be able to pay off. For many people struggling with student loan debt and interest payments, even paying back a dime of their principal loan amount is a feat in itself. The Obama administration will have to come up with a plan not only to ensure that borrowers are able to repay their debt in the future, but also to protect the system from abuse.

Struggling with Student Loan Debt? Allmand Law Firm, PLLC Can Help You Find a Solution

For many people struggling with student loan debt, it can seem impossible to see the light at the end of the tunnel. Allmand Law Firm, PLLC wants you to know that no matter how hopeless your situation may seem, there are a number of debt solutions that may be right for you. We encourage you to get in touch with a Dallas bankruptcy attorney at our firm to begin discussing which options are best suited to your individual situation.

Our goal is to help you regain your financial freedom. Click here to fill out an online consultation form, or call our office at (214) 238-9608.

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