Jeffrey M. Rosenblum, P.C.
A Fresh Start

Student loan debtors may be eligible for bankruptcy

Students in New York may have heard that it is not possible to get rid of student loan debts through bankruptcy; however, this is not necessarily the case. Only since the 1970s have laws been passed restricting an individual's abilities to discharge student loan debt. As student loan debts mount, individuals are increasingly calling for those loans to once again become allowable in bankruptcy proceedings.

Increasingly, courts are siding with debtors, including student loan debtors, who are sometimes able to discharge debts via a little-known loophole that requires one to prove intolerable economic hardship. These debtors must show that they cannot maintain a basic standard of living and that they do not expect a significant change in their circumstances.

Individuals have to go through what is known as "adversary proceedings" in which they must prove to their creditors that they cannot pay. One man who had $60,000 in student loans was able to negotiate the amount down to around $6,000. A court also ruled in favor of a quadriplegic man who was unable to repay student loans as well as a 68-year-old woman on Social Security. In both cases, judges argued that they had the right to use their income for living expenses.

Individuals who are unable to pay back their debts may wish to consult a lawyer. While some debtors may have heard that certain debts cannot be discharged or that they will lose everything they own, this may not be the case. For example, individuals may be allowed to keep a vehicle and a primary residence. They might also be allowed to work out a payment plan with creditors depending on what type of bankruptcy they are filing for.

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