On February 7, 2012, the National Association of Consumer Bankruptcy Attorneys (NACBA) published the results of a survey of its 860 of its members. It found that a whopping four out of five bankruptcy attorneys reported a “major jump” in student loan debtors seeking counseling with bankruptcy attorneys. The NACBA characterized the problem as the “Student Loan Debt Bomb.” The accompanying report contains several interesting findings.
Specifically, 48 percent of the attorneys said they saw a “significant increase” in potential clients, while 33 percent described the increase as “somewhat.” As for more concrete numbers, 23 percent saw a potential client increase of 50 to more than 100 percent over the last three to four years. 39 percent reported an increase in potential clients with student loans growing at a rate of 25 to 50 percent. The report doesn’t say, but that’s 53 percent of the 860 attorneys seeing at least a 25 percent growth in potential cases.
Unfortunately, potential cases will likely stay that way due to the onerous requirements of the “undue hardship” exception to student loan dischargeability. 95 percent of the surveyed bankruptcy attorneys believed that few people would successfully discharge their debts. The student debt problem gets more complicated when students’ parents are taken into account. Many of them are seeing their retirement finances crippled by the loans they co-signed on behalf of their children. Default data are hard to come by because the Department of Education uses a two-year “cohort default rate,” which only takes a snapshot of defaults over a recent, moving time period. The report relays that according to theChronicle of Higher Education, the default rate for loans belonging to 2005 graduates is 20 percent. The total default rate could easily be significantly higher.
Importantly, the report staunchly advocates for eliminating the undue hardship completely, which would allow anyone to discharge their student loans in a Chapter 7 bankruptcy so long as they passed their state’s means test and met the other criteria required by the 2005 bankruptcy law. This would take the bankruptcy law’s approach to student debt back to what it was in the 1970s, before the initial time limits were put in place.
The question isn’t whether student loans will become a serious political issue but when. So far, aside from the Student Loan Bankruptcy Fairness Act in the House of Representatives and its counterpart in the Senate, the Fairness for Struggling Students Act, there is very little political will to deal with this problem. For those who have student loans, the likelihood of default will increase so long as jobs are scarce and wages are low. If you have student debt and are encountering financial hardship, consulting with an experienced New York bankruptcy lawyer can help. A Chapter 7 filing can eliminate other debts, freeing up income for other uses.
For more questions about student loans, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy attorney Brooklyn NY Bruce Weiner for a free initial consultation.
