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Even in bankruptcy you have to pay your student loans

When one declares bankruptcy, the hope is that the majority of debt can be discharged or restructured in a way that helps a person regain financial footing. For most debt, including car loans, mortgage, credit card debt, medical debt, and even gambling debt, this is true. However people everywhere, including in New Jersey, are finding that one often-huge debt is not dischargeable in bankruptcy: student loans.

Student loans, by the nature of what they pay for and rising tuition rates, often cover a significant amount of money. Unfortunately, the vast majority of people are stuck with it, even if they file for bankruptcy. A 2005 law is part of the reason this problem exists, as it lumped private student loans into the category of debt that is practically impossible to have discharged in bankruptcy, along with child support payments and criminal fines.

In an effort to avoid aggravating the problem, Congress is being called upon to stop a scheduled doubling of loan rates for some federal student loans. This doubling would take the current rate of 3.4 percent and raise it to 6.8 percent for these loans. Intercepting this anticipated rate hike would save 7 million new borrowers nearly $1,000 each per year. Nevertheless, this would not aid those who are currently suffering from private student loans they took out in the past.

The Federal Reserve Bank of New York estimates that there are 37 million Americans who currently have student loan debt totaling $870 billion. Out of this, 15 percent is private loan debt that people in New Jersey and nationwide are forced to suffer through even when declaring bankruptcy and working to discharge or resolve other existing debt. While this issue gathers steam, those who cannot wait for Congress to act may consider filing a Chapter 7 bankruptcy proceeding to discharge other debt or a Chapter 13 proceeding to reorganize debt under the court's supervision in an attempt to set aside additional funds to address student loans.

Source: The Sacramento Bee, "Even after bankruptcy, trapped by student debt," Justin Pope, April 25, 2012

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