Additional relief for those New Jersey residents turning to bankruptcy in the current economic climate may be on its way. Two bills currently being considered in the U.S. Congress, the House’s Private Student Loan Bankruptcy Fairness Act and the Senate’s Fairness for Struggling Students Act, will allow graduates to include their private student loans in their Chapter 7 filings.
The National Association of Consumer Bankruptcy Attorneys is calling for the inclusion of student loan debt which now exceeds credit card debt for the first time ever. Because student loans fees and interest rates do not include limits, they are crippling those who have had to defer their payments over and over while struggling to secure gainful employment.
Prior to 1976, both federal and private loans were allowed to be discharged under bankruptcy rules, but unless one can prove “undue hardship,” they currently cannot be included in any debt relief avenues. The current proposed legislation would at least provide some relief for graduates with loans from private vendors like banks and Sallie Mae. Unfortunately, federal student loan debt is not covered in either bill.
According to the NACBA, not only are students assuming more debt because of their student loans, but parents borrowing money to cover their children’s student loans has also skyrocketed by 75 percent in the last few years. Allowing student loans to be discharged in bankruptcy proceedings, specifically Chapter 7 filings, would give graduates the opportunity to start with a clean slate once they finally secure gainful employment in the improving economy.
Source: Reuters, “Should student loans be discharged in bankruptcy?” Andrew Chow, Feb. 27, 2012