Kentucky Bankruptcy Law

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Update on Discharge of Student Loans

Not long ago I wrote a post specifically about the treatment of student loan debt here in the Eastern District of Kentucky Bankruptcy Court. In my post I noted the strenuous test for discharge in this district, but the student loan debt issue is a looming time bomb nationwide. Fewer and fewer college educated persons are gaining employment in their field of study leading to defaults on student loans. Bankruptcy rarely offers relief from this mounting debt issue that will likely impact us as a nation a few more years down the road.

The Consumer Financial Protection Bureau (CFPB) and U.S. Department of Education released a report addressing the worsening issues surrounding mounting student loan debt and abuses cropping up with private student loans. The National Association of Consumer Bankruptcy Attorneys (NACBA), of which I am a member, summarized the 131 page report this way:

Among the recommendations to Congress:  Revisit the harsh treatment of private loans in bankruptcy. The report finds that since adoption of the Bankruptcy Act of 2005, which made private student loans nondischargeable in bankruptcy, there has been rapid growth in questionable lending practices, compounding the risk to student borrowers. The report also found little to no evidence that restricting bankruptcy rights improved either loan prices or access to credit. The CFPB and Education Department both recommend in the report that Congress revisit this unfair restriction of bankruptcy relief for private student loans. Email from Maureen Thompson, NACBA Legislative Director dated 7/20/12

I encourage anyone interested in this issue to contact their Senators to support a bill pending to restore bankruptcy protections to private student loan debt.


July 25, 2012 Posted by | Bankruptcy, Chapter 13, Chapter 7, Student loans | , , , , , , , , , | Leave a comment