Tuesday, June 8, 2010
Bankruptcy judges have broad powers when it comes to erasing consumer debt. A bankruptcy judge may help a borrower who has leased a car that is no longer affordable, or incurred substantial credit card debt. However, when it comes to former students attempting to obtain relief from loans incurred to finance education, bankruptcy judges are almost always unable to assist in erasing the debt.
In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act. This Act added private student loans to the small list of debts that cannot be forgiven (government funded student loans had been long been included on the list). Students are able to borrow much more money with private loans than with government funded loans. This makes students more likely to use the private sector, as well as enabling them to fall much deeper in debt.
Consumer advocate groups are currently rallying to have Congress alter their stiff policy on student loan debt forgiveness. The proposed changes would make it easier to obtain relief from private student loans. However, there are pros and cons to such bankruptcy code changes.
One thought is that this would encourage more people to declare bankruptcy which may anger tax payers already tired of watching their neighbors walk away from home loans during the current mortgage crisis. Additionally, banks would have less incentive to grant young people, typically with little or no collateral, the large sums of money needed to obtain certain college degrees. This will raise borrowing costs, since the banks would pass this risk to borrowers as a whole.
On the other hand, such changes could allow those borrowers that truly cannot repay such loans necessary relief.
It is uncertain whether any changes will be enacted. The current policy favoring creditors over borrowers is likely to continue for some time. If you are struggling with student loans, obtaining representation can help you get the best results out of a law unfavorable to your situation. Yesner & Boss, P.L. has attorneys that will help you navigate your way out of debt. We will fight to restore your credit and get you out of debt.