Published Study About Student Loan Discharge

Most people filing bankruptcy understand that Chapter 7 bankruptcy will not discharge student loan debt. In fact, the bankruptcy law provides an exception to the general rule of non-dischargeability when the debtor can demonstrate that the student loan causes an undue hardship on his post-bankruptcy recovery.

The requirements to meet the exception and discharge student loans are very strict. Most attorneys tell their bankruptcy clients that it is almost impossible to obtain an undue hardship exception and eliminate their student loans. While student loan debt is a significant contribution to debtors’ financial problems few even try to discharge this debt in bankruptcy.

I read an article in the Huffington Post  recently about a study on student loans in bankruptcy which was conducted by a professor at Princeton University. The study took an empirical look at student loan discharges in bankruptcy. The study found that in fact four of ten people who attempted to discharge student loans in bankruptcy under the undue hardship rule. The author concluded that many people who could have qualified for a student loan discharge never even tried.

Costs is one reason why most Chapter 7 debtors do not consider seeking student loan hardship exception. The debtor has to file a separate adversary proceeding to discharge student loan debt. Most attorneys will charge more legal fees to seek a student loan discharge. The amount of legal work and fees for the student loan case will in most cases exceed the cost of the underlying bankruptcy.

Most bankruptcy debtors can barely afford to file bankruptcy after draining their resources to avoid bankruptcy in the first place. When they consider that most petitions to discharge student loan debt will not be successful few Chapter 7 debtors are able and willing to invest in an attempt to wipe out these loans even if the loans will otherwise continue to impose a substantial debt burden.

The post Published Study About Student Loan Discharge appeared first on Orlando Bankruptcy Law Blog.