A new report published by the National Association of Consumer Bankruptcy Attorneys predicts that a student loan debt crisis is inevitable, as the total student loan debt in the United States is about $1 trillion. By contrast, U.S. credit card debt is about $798 billion. Miami bankruptcy lawyers are among those calling for bankruptcy law reform.
The report, released this week, surveyed 860 bankruptcy attorneys across the nation. More than 80 percent of the survey respondents said they had seen clients with student loan debt increase in the last four years. Many student loan debtors are forced into bankruptcy for consumer debt because all their available income goes toward paying off student loans.
Without an “undue hardship,” Student loans cannot be discharged in bankruptcy. One way to prove undue hardship is to show that the debtor cannot maintain a “minimal” standard of living if he were forced to repay the loans. The burden of repayment is measured against the debtor’s existing income and expenses, and the debtor must also show that the current financial state will hold steady for most of the loan repayment period. In addition, the debtor must also show that he had made a good faith effort to try to repay the loans.
One advocate of reform proposes a solution to the situation: loan repayment periods would be extended, and individuals with student loan debt would be allowed to discharge all or part of the balances owed in bankruptcy court. Legislation has been introduced in the House of Representatives that would implement some of these changes.
Source: USA Today, “Bankruptcy lawyers: Student debt is looming economic bomb,” James Goodman, Feb. 8, 2012