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For some persons, bankruptcy may ease a student loan crunch

Student loan debt continues to be a serious economic problem in Arkansas and in the United States. Outstanding student loan debt reached a record $1.35 trillion in 2016, which was an increase from the preceding year. About 10 million people are in default at this time, and that does not include those who are struggling with private student loans. Relief of student loans through bankruptcy continues to be problematic, but a lessening of the rules may be necessary to avert a major economic downturn.

The problem in the past decade has been the tightening of laws on the dischargeability of student loan debt. The rule requires a person to prove undue hardship to get rid of student loan debt. That is a tough standard to meet, especially based on the harsh interpretation given to the term by bankruptcy judges. Nonetheless, the prospect of discharging part or all of a student loan should always be discussed with an experienced consumer bankruptcy attorney prior to making any decisions.

For some people, it may pay to file bankruptcy even without the ability to discharge a student loan. That would be the case for those with unmanageable credit card and/or medical debt. All unsecured debt like that can be quickly and permanently discharged in a bankruptcy if one is qualified to file for relief. In such situations, it can be a major relief for an individual or married couple to erase a large amount of unsecured debt even with the student loan remaining intact.

Some people may qualify for the undue hardship test to discharge student loan debt. If that is not the case, there may be further help coming as the government tries to make the discharge of such debts more flexible. The situation could be largely improved if Congress will pass a law softening the harsh undue hardship test. In Arkansas, it is necessary to consult with a consumer bankruptcy attorney to determine precisely what options an individual or married couple may have with respect to bankruptcy and debt relief.

Source: azcentral.com, "Why student loans are harder to write off than credit-card debt", Neal Hutchens and Richard Fossey, Sept. 3, 2016

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