The National National Association of Consumer Bankruptcy Attorneys (NACBA) has issued a statement on its website bringing issue with the Department of Education’s role in fighting Student Loan discharge in consumer bankruptcy filings.
Under the bankruptcy code, the filer’s bankruptcy attorney has to bring an action called an adversary proceeding against the student loan lenders to show hardship in repayment of those loans. If the bankruptcy lawyer can show hardship, then the debts can be eliminated. If the bankruptcy attorney cannot show a hardship, the debts remain in place.
Many issues exist with obtaining hardship discharge of student loans. The bankruptcy attorney representing the borrower has to show that a good faith effort was made to repay those loans and that there is no way that the borrower could ever repay. Most borrowers who are recent graduates will have no chance to reduce their debt as they will not qualify under attempts at good faith payments and their income is expected to rise over the term of the loan – 15-25 years.
The bankruptcy lawyer has little to work with unless the income from the borrower is completely stagnant and yet they have made attempts at paying the loans in the past.
Due to the overwhelming amount of student loan debt in the United State, President Obama has issued instructions to the Department of Education to provide information and assist parties in determining whether an undue-hardship bankruptcy filing would be accepted.
The Department of Education, however, has maintained a policy of objecting to all attempts to reduce or eliminate student loan debt in bankruptcy filings due to hardship.
The NACBA, which is composed of member bankruptcy attorneys for consumer debtors, has brought forth this issue again and requested a revisit to the policy in order to better serve hardship bankruptcy filers.
WASHINGTON, D.C. – July 13, 2015 – The National Association of Consumer Bankruptcy Attorneys (NACBA) and National Consumer Law Center, Inc. (NCLC) issued the following joint statement today:
“In March, President Obama directed the Department of Education and other federal agencies to do more to help serve the nation’s student loan borrowers, including those in financial distress and those who have been wronged by loan servicers, loan collectors, or schools. In order to provide clarity with respect to the rights of borrowers in bankruptcy, the Department of Education was directed to provide information to assist parties in determining whether an undue-hardship case in bankruptcy should be accepted or contested.
Last week, the Department of Education responded to the White House in the worst possible way by giving a green light to the loan holders’ aggressive strategy of fighting virtually every case in which undue hardship is claimed. Not only is this completely contrary to the intent of President Obama to find a way to help out more student loan borrowers suffering genuine financial distress, it will only serve to encourage loan holders and the Department’s contractors to be even more ruthless in systematically using their considerable legal might to crush any such filings under a mountain of appeals, delays, and other tactics.
Americans have accumulated $1.2 trillion in student loan debt, exceeding even the level of credit card debt in our nation. Seven in ten college seniors who graduated in 2012 had student loan debt, with an average of $29,400 per borrower. Because federal law treats student loan debt as nondischargeable in bankruptcy proceedings except in the case of undue hardship, borrowers can be burdened with this debt for a lifetime even if circumstances make it unlikely that the borrower will ever be able to repay.