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You Deserve Financial Relief

Russell G. Small and Kenneth E. Lenz

Should you declare bankruptcy to clear your student loans?

| Apr 28, 2021 | Chapter 7 Bankruptcy

Student loan debt has doubled in the past decade. Currently, the total for the country sits at over $1.7 billion. If you have a share of that debt, things might seem pretty hopeless right now. The economic outlook is uncertain. The prospect of making enough to pay your debts may be fading into the distance.

Last year Senator Elizabeth Warren introduced the Consumer Bankruptcy Reform Act. It proposed allowing people to clear student loan debt via bankruptcy. It suggested making filing simpler, with a new Chapter 10 bankruptcy replacing the current Chapter 7 and 13. So far, there has been no movement on the act in congress.

Senators have also discussed forgiving a set amount of people’s student loan debt. Some suggest $10,000 per person, and some want $50,000 per person. Others are opposed to any forgiveness.

What are your options if you have student loan debt?

Current bankruptcy rules permit you to include student loan debt in a filing. However, the restrictions on it are so strict that few people have managed. You need to look at other options.

You could wait, hoping that lawmakers agree to forgive $50,000 of student loan debt. You could sit and hope they pass the reform to allow you to clear your loans under the proposed Chapter 10. Or you could take action now.

If filing for Chapter 7 bankruptcy clears most of your other debts, it may leave you enough to cover your student loan repayments. Then, if student loan forgiveness does happen, it will be a bonus. Sitting doing nothing if you cannot meet debt repayments will only make things worse. Late payment fees and interest will see your debts grow and your prospects of paying shrink.

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