"the Student Loan Bankruptcy Conundrum: Is Relief Possible?" - Views from the editorial office, opinions of guest and national columnists, as well as the latest letters from our readers.
For those times when I absolutely cannot bear to listen to one more horrific story about the massacre of children, political corruption, or reports from Ukraine, I stream vintage TV. My current distraction is the series “Parenthood,” which features a character with Asperger's syndrome, although in reality this child does not suffer from the condition. In almost every episode, this character yells, "That's not fair!" on various issues. I suspect that's exactly how many people feel about President Joe Biden's promise to eliminate (some) student debt. I am conflicted because I feel the same way about reducing or eliminating debts in bankruptcy. It's a puzzle.
"the Student Loan Bankruptcy Conundrum: Is Relief Possible?"
Generally, federal student debt cannot be discharged or reduced through bankruptcy. There are exceptions if the student loan borrower files a separate “adversary” bankruptcy petition and can demonstrate extreme hardship. Even if they don't get approved, filing a claim can lower a borrower's monthly payment.
The Root Of Student Debt
On the other hand, credit card and other debts owed to suppliers and service providers can be reduced or even eliminated with an approved bankruptcy judgment. As a result, some lenders are put out of business because the people who hire them are discharged from their debt. Bankruptcy is said to depend on need to determine how much debt can be discharged and what assets must be forfeited to achieve this. Yet some of our world's wealthiest people may file for bankruptcy multiple times while their companies protect them. Because the company is responsible for the debt, the individual can keep multiple homes and other assets without affecting their credit rating. Honest? Ask some of the small businesses that suffered when former President Donald Trump's various companies filed for bankruptcy.
Frankly, according to the Department of Education, the fact that nearly 40% of people with delinquent student debt in 2021 never finished college worries me the most about student debt relief. Not only have students been duped with fictitious promises of a great education and fantastic job opportunities, but also students at prestigious institutions who simply didn't graduate, often because life got in the way.
When the draft was still in effect, boys could be drafted if they didn't carry a full load. Women, of course, were not affected by the draft, but suddenly both sexes could find themselves with families to support, and they had no time for school. And yet such things happen in life, don't they? If you bought a new car in installments, you still owe on the car. If a plane crashes into your mortgaged home, you still owe the lender. Hopefully he has taken out insurance for the latter two disasters. But insurance was not an option for students seeking loans. Unsurprisingly, according to the Department of Education, women currently owe nearly two-thirds of delinquent student debt. Then there's the issue of people carrying student debt into retirement.
In 2021, those ages 50 to 61 racked up the highest average student loan debt as they sought training for a new career, according to the federal Student Aid Office. These new loans are not yet delinquent. But for those over 65 on a fixed income, this is not always true. Until recently, Social Security, Veterans and Railroad Retirement benefits could only be deducted for delinquent child support and federal income taxes. This is no longer the case. They can now also be tied to delinquent federal student loans, although various (usually means-tested) programs can help seniors in these circumstances.
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Since we've already given debt relief to many industries and allowed individuals to protect personal income and assets through corporate ownership, couldn't some relief be considered for the poorest of the poor with student debt—especially those who never finished school? In essence, they paid for a product (education) that they never received. However, any relief requested must be made on a need-based basis and not on a blanket basis.
Is it fair that many people have paid off their student debt without getting a discharge while all these new people are getting their debt reduced or eliminated? Maybe not. But to quote my mother on this: “Nobody ever promised you fairness.”
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Nasty Pitfalls Of Chapter 7 Bankruptcy That You Should Know
For most debtors, a discharge is the primary purpose of filing for bankruptcy – a discharge is “the foundation upon which all the rest of the Bankruptcy Code is built” Anderson v. Credit One Bank, N.A., ___ F.3d ___ (2nd Cir . 2018) After a discharge the creditor is permanently barred from collecting the debt pursuant to 11 U.S.C. § 524. Except if the debt is not considered to be issuable.
Certain taxes, debts obtained by misrepresentation or fraud, fines or penalties payable by willful or malicious damage to the property of another entity or entity resulting from forgery, embezzlement, or theft, except to and for the benefit of the government. The debt resulting from such a discharge would involve undue hardship, student loan death or personal injury caused by the debtor's operation of a motor vehicle while intoxicated and which operation was unlawful because the debtor was intoxicated.
Chapter 7 Chapter 13 Type of bankruptcy proceedings, liquidation reorganization (for individual debtors) Who can file a report? Individuals and Corporations Individuals Only (including sole proprietors) Eligibility Limitations Must disposable income be low enough to meet the Chapter 7 means test to receive an exemption? Usually 3-4 months after all plans are paid (usually 3-5 years) What happens to the property in bankruptcy? The trustee may sell all non-exempt property to pay creditors. Debtors keep all property, but unsecured creditors must pay an amount equal to the value of non-exempt assets. The benefits allow debtors to quickly settle qualifying debts and start anew, allowing debtors to maintain at-fault and Catir. Mortgage, car and non-payable priority debt repayment Disadvantages The trustee can sell exempt property. It doesn't provide a way to catch up on missed payments to avoid foreclosure or repossession. You have to pay a monthly salary to the asset manager for 3-5 years. You may have to pay back some of your general unsecured debts.
Student loan crisis 07.11.2018 During the recession, consumers reduced their other debt, but student loan balances continued to grow. $1,521,000,000 per current student loan debt
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11/07/2018 $1.44 trillion in total student loan debt. 44.2 million individuals have student loans. The average balance is $30, 100 The delinquency rate is 11.2% (90+ days). The average monthly salary is $351.
(10x increase since 2007) This chart only includes federal student loans. Private loans increase the debt burden to $1.4 trillion. A tenfold increase since 2008.
The purchasing power of the median household has remained relatively flat since 1978, while tuition and medical costs have exploded. Ready access to student loans increased the demand for education, and according to the law of supply and demand, the cost of education increased. The cost of living
Borrowers demonstrate reduction in home ownership delay (longer until down payment accrues) Delay in starting a family Delay in retirement savings
San Diego Student Loan Makes It Easier To File For Bankruptcy
11/07/2018 "Seniors" Seeing the largest increase in student loan liability (as a co-signer?), student loan debt is increasingly on the balance sheet of older people. This is likely to force them to stay in the workforce longer, which could make it harder for younger workers to find employment. The debt burden, in addition to forcing the younger generations to take a shorter retirement, backward jobs and career mobility, can mean lower consumption not only for young adults.
12 Co-signer survey 1. Do you think you understood the risks of the co-signer? Yes % No % 2. Was there a negative impact on your credit rating? Yes % No % 3. Does your child's student loan debt jeopardize the pension? Yes % No % 4. Did you help your child pay? yes % no % 5.
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