Many different types of debts can be discharged in a bankruptcy. However, student loan borrowers in Connecticut may not be able to get their debts cancelled through this process. That is because lawmakers in previous decades felt that students would try to get out of paying their loans by discharging them after graduation. To get a student loan erased in bankruptcy, a borrower needs to show that he or she cannot keep paying because of an undue hardship.
Unfortunately, there is no standard definition for what an undue hardship is. This can make it difficult for borrowers and advisers alike to predict how a case may unfold. If the Student Borrower Bankruptcy Relief Act of 2019 passes, it would be easier for student loan debtors to erase their balances. It has bipartisan support and has been praised by numerous groups including Americans for Financial Reform.
One potential downside is the possibility that lenders raise interest rates on student loans if they can be discharged in bankruptcy. However, it is thought that lenders may work harder to accommodate borrowers so that they make payments instead of filing bankruptcy. After an initial rise in student loan bankruptcy cases, it is expected that bankruptcies related to student loans would stabilize. Prior to 1976, only 1% of education loan debt was cancelled through bankruptcy.
Individuals who are filing for bankruptcy may be able to keep property and put a temporary end to creditor contact by doing so. Even if a debt cannot be discharged through bankruptcy, it may be possible to get other debt balances reduced or eliminated. Ultimately, this may make it easier to pay a student loan, tax or other balance that remains.
Those who need help with their student loan debt should contact us today.