Student loans and bankruptcy in New York

According to a study done by an attorney, 40 percent of holders of student loans were able to have those obligations discharged in bankruptcy court if they attempted to do so. Furthermore, although there are thousands of good candidates for full or partial discharges, the vast majority do not avail themselves of this opportunity. This is partially because of the widely-held perception that student loan obligations cannot be discharged in bankruptcy.

While it is possible to have such debt forgiven, it may be a long and difficult process. However, changes to student loan rules may make it easier for students to attempt to have debt forgiven through bankruptcy. The Student Aid Bill of Rights recently introduced through executive action by the Obama administration contains a provision that would provide more information to students as to how a bankruptcy court determines when continued payment of student loan debt would constitute a hardship and thus eligible for discharge.

To some, this is seen as another step in making it possible for student loan debtors to understand their options. The Student Aid Bill of Rights also aims to add protections that may make the repayment of student loans easier to negotiate. Overall, this could make it easier for both students and bankruptcy attorneys to develop strategies that may allow for the discharge of such debts.

Filing for bankruptcy protection may make it easier for debtors to obtain a fresh financial start. An attorney can outline to a client who is overwhelmed by financial obligations the eligibility and other requirements of Chapter 7 during an exploration of the available forms of debt relief. One immediate benefit of filing for bankruptcy is the cessation of creditor harassment activities that the law requires.

Source: FOX Business, “Will You Finally Be Able to Get Rid of Your Student Loans in Bankruptcy?”, Steve Rhode, March 12, 2015