Could Bankruptcy Be a Solution for Those Struggling with Student Loan Debt?

Posted On: August 7, 2012 under

A federal agency is asking Congress to consider letting people wipe out some of their student loan debt by filing for bankruptcy protection, but how it would impact the immense amount of student debt remains to be seen. According to a Kare11.com news report, student loan debt has soared from $430 billion to more than $1 trillion since 2005, with federal loans accounting for an estimated 85 percent. Private loans comprise the remaining amount at 15 percent. In addition, the default rate on Federal debts is running at nine percent. With these startling statistics, it is clear the challenges student loan borrowers face are great and quite widespread.

Student loan debt is not only a problem for young borrowers, as borrowers over 40 accounts for a third of the nation’s $1 trillion in student loan debt, and this group is struggling with making the payments more than any other age group. For Americans ages, 40 – 49, the delinquency rate for these student debts was 11.9 percent, notably higher than the 8.7 percent for borrowers of all ages.

The proposed bankruptcy protection, put forward by the Consumer Financial Protection Bureau, aims to change the 2005 law that prevents borrowers from discharging student loan obligations in bankruptcy. Presently, up to 25 percent of an individual’s wages can be deducted until a loan is paid back in full. The suggested change would allow the discharge of private student loans for those filing for bankruptcy.

For people being garnished over a student loan, Chapter 13 bankruptcy may give you a chance to take care of all your debts and stop garnishments from piling up. For people with student loans and a lot of unsecured debt, Chapter 13 bankruptcy can buy you some much needed breathing space to lower debt and get your finances under control.

However, consumer advocates say this new proposal would do little to help the majority of families struggling with college loans given that most obligations are Federal, not private.

The financial obligations a person may acquire over time can become overwhelming, leaving a person to seek practical solutions to their monetary woes. The bankruptcy lawyers in Chattanooga with Massey & Associates, P.C. understand the challenges you may face on the road to financial recovery and can help you solve your financial problems by discussing all of your options with you and helping you choose the best course of action. For a complimentary consultation, please call (423) 697-4529.

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