Numerous myths exist about student loan bankruptcy and whether debt can be discharged. The confusion is serious, disabling many individuals from getting their finances together.
The fact is that student debt is incredibly widespread in the country and the scope of the problem is continuing to grow. The average graduate enters the workforce with a debt of 28,400 dollars. Many of these people have questions about the debt and its relationship to bankruptcy. There are unique rules that apply to this highly distinct form of debt. Here are seven important, yet surprising facts about student loan bankruptcy and debt discharge.
Talking about the Numbers
The numbers related to student loan debt are pretty shocking on their own. Student loan debt in the country totals 1.2 trillion dollars and it’s accumulated by 40 million people. Student loan debt is increasing by 110 million dollars on an annual basis.
In 2007, there were nearly 170,000 student loan debtors that filed for bankruptcy. The number has increased since. According to a Harvard Law School study, 99.9 percent of the debtors that file for bankruptcy don’t ask for student loan forgiveness. Of those that ask for forgiveness, 40 percent are granted either partial or a full discharge.
Wages Decrease, Student Debt Increases
The student debt figure has increased by more than 500 percent since 1999, Huffington Post reports.
The problem is aggravated by the fact that the salaries of graduates haven’t seen a significant increase in those years. Since 2000, the average salary for university graduates has actually gone down by 10 percent. These two combined factors have led to the aggravation of the student loan crisis.
Student Debt and Bankruptcy Discharge
Student debt discharge after bankruptcy has to follow a strict procedure. Though it is a viable possibility, many of the debtors have no idea what steps to follow in order to relieve the financial burden. A consultation with an experienced bankruptcy lawyer is the first step towards assessing the situation and figuring out whether student loan discharge is possible. If an individual has been out of school for seven years prior to declaring bankruptcy, student loan discharge is a viable possibility.
Ways to Get Your Student Loan Discharged Via Bankruptcy
To get student loan forgiveness, individuals that have declared bankruptcy must specifically request it.
The Brunner Standard is used to figure out whether bankrupt individuals qualify for student loan relief. There are three main requirements under the Brunner Standard:
- Loan repayment makes you incapable of maintaining the minimal standards of living (both individually and for your family).
- The circumstances that made you incapable of making student loan repayments are expected to continue affecting you and your family throughout the rest of the repayment period.
- You should be capable of proving that you’ve made a good effort to repay your student loan, regardless of your financial situation.
According to the Harvard study mentioned earlier, most individuals that have gotten a partial or a complete discharge share a number of common characteristics. These individuals are usually unemployed, they often deal with medical hardships and the income of the bankruptcy filer is usually very low the year before filing for bankruptcy.
You’re Eligible for a Student Loan Even after Bankruptcy
Some individuals decide to go to college later on in life. If they’ve already filed for bankruptcy in the past, some of these people worry that student loan opportunities will be non-existent.
Anyone who’s looking for ways to go back to school will need to talk to a bankruptcy attorney to understand the situation better. A bankruptcy filing remains on record for a period of 10 years. Yet, everyone is protected by federal law and student loan opportunities are available.
Student Loan Bankruptcy and Its Effect on Employment
It’s possible for student loan debt to make young professionals unemployable. The personal credit score is affected by student loan debt and for many employers, a poor credit score is a big no-no.
Individuals that have defaulted on a student loan will also automatically become ineligible for a range of government jobs. Many universities will be unwilling to release official transcripts to companies willing to employ former students who’re in serious debt. These two combined factors decrease the chance of some borrowers to find a stable employment option
Student Loan Debt and Inheritance
Borrowers that have federal student loans don’t need to worry about the inheritance of the debt. Private student loans, however, can be transferred to family members upon the death of the borrower.
There have been some suggestions for legislative changes. One of these initiatives is the HR 2961: The Student Loan Protection Act of 2013. Better known as Christopher’s Law, this legislative change will make private education lenders come up with clearer definitions about the obligations of the borrower, as well as about the discharge possibility in the case of serious injury or borrower death.