Student loan numbers in America today are staggering, and they’re still rising. More than 50% students now have to go into debt just to get through college, and collectively, they owe approximately $1.6 trillion, according to the Federal Reserve Bank of New York.
On top of this crippling debt, even bankruptcy doesn’t provide relief in typical circumstances. Debtors who file for personal bankruptcy often have a hard time including student loans for discharge, even though they can, according to Senator Elizabeth Warren, “cancel credit card debt, they can cancel medical debt, they can cancel excess debt on their car loan, they can cancel debt that exceeds the value of a home they might have, but it’s virtually impossible to cancel student loan debt… that’s fundamentally wrong.”
Senator Elizabeth Warren goes on to say that student loans should be canceled in bankruptcy.
Previously, House Judiciary Committee Chairman Jerry Nadler (D-NY) and Warren introduced the ‘Consumer Bankruptcy Reform Act of 2020’. This proposes the replacement of the current system of chapter 7 and chapter 13 personal bankruptcies with just one: chapter 10. This would enable broader eligibility for discharging student loans in bankruptcy.
This doesn’t imply that Warren is no longer pushing for the cancellation of student loan to begin with, however. Warren has stressed that any bankruptcy reform should ideally include student debt loan forgiveness.
Warren also stresses that the federal government should not be throwing people into bankruptcy to deal with run-of-the-mill student loan debt.
Both Warren and Senate Majority Leader Chuck Schumer (D-NY) have repeatedly urged President Biden to cancel $50,000 on federally-held student loan debt via executive action; this would bypass the need for legislation to be passed by Congress.
Meanwhile, the president has asked the education secretary, Miguel Cardona, to prepare a memo on the president’s legal authority before taking any action. However, student loan cancellation has faced a major drawback in court recently. The U.S. Court of Appeals for the Second Circuit issued a ruling that could make it even more difficult to discharge these loans in bankruptcy.
Although we might see student loans get cancelled entirely or discharged once bankruptcy is declared, that might not be an ideal solution for you. If you’re struggling with two of the largest consumer debts in America today — mortgages or student loans — or any other financial debt, getting expert financial help is a good idea.
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