On April 15 of this year The Private Student Loan Bankruptcy Fairness Act of 2010 was introduced to the House of Representatives calling for certain student loans to be eligible for discharge under bankruptcy.
Time will tell whether the Act becomes law; if it does, it is likely to undergo substantial revisions prior to passage.
Student loans are not dischargeable
Under the current law, student loans are not dischargeable in a bankruptcy. There are certain provisions allowing for dischargeability in the event that the bankrupt debtor can show “undue hardship,” but experience has taught us that if the debtor is blind, deaf, mute, and is missing all four limbs, there is a small chance that the debtor can show undue hardship and thus have his or her student loans discharged in a bankruptcy.
In other words, undue hardship just doesn’t happen.
Q: What about all the exemptions that exist at the federal and state levels– can’t I use exemptions to keep the feds from liquidating my assets to try and collect on student loan debt?
A: GOOD QUESTION and the answer is NO! The feds don’t have to abide by the exemptions, as to student loan default and certain other debts. Check out this helpful set of FAQs from the Federal Student Aid Collections site, which includes these on financial hardship caused by:
- My federal and/or state tax refund has been offset
- My social security or other federal and/or state payment is being offset
- My wages are being garnished
- The agency that holds my loan is demanding unreasonably high payments
If you have student debt in addition to other debts you struggle to pay, a debt counseling session with a qualified bankruptcy practitioner will give you clarity for how to proceed with satisfying your obligations.