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L.A. Chapter 7 Bankruptcy May Soon Offer Private Student Loan Discharge

Blogs from April, 2013


A bill has been introduced in Congress that would allow private student loan debt to be discharged the same as any other debt in a Chapter 7 bankruptcy.

Our Woodland Hills Chapter 7 bankruptcy attorneys know this is an exciting prospect for many students and graduates‚ as private student loan debt reportedly accounts for about 15 percent of all student loan debt (or $150 billion out of $1 trillion).

This is not the first time a measure such as this has been introduced by federal legislators. In fact‚ it’s the fifth. It has faltered every time. But there is good reason to believe it could be successful this time – not the least of which involves the personal student loan debt of our elected representatives.

A recent report from the Center for Responsive Politics indicates that House Representatives and Senators collectively owe approximately $4.3 million in student loan debt – up from $2.4 million just three years earlier. (Some of those involved co-signing for loans for children or other dependents.) The total number of Congressional borrowers during that time frame also rose from 30 to 46.

So there is some indication that these individuals “feel our pain.”

Beyond that‚ though‚ is a growing sentiment among Americans that our student loan debt is crippling us all by hampering economic growth. New graduates aren’t able to get jobs‚ so they can’t pay off these enormous student debts. That in turn affects their credit‚ which in turn could hurt their future job prospects. It’s a vicious cycle.

And it’s not one that’s likely to improve under the status quo. Consider that‚ according to the Orange County Register‚ both the University of California and California State University have more administrators on staff than they do professors. Not only does this make little sense‚ it means students pay higher tuition and incur higher debt.

In addition, tuition costs are actually rising faster than incomes‚ according to the Woodland Hills Times. In fact‚ the amount of student loan debt has continued to increase even while Americans are working hard at driving down other forms of debt – mortgage debt is down more than 13 percent and credit card debt is down by nearly 25 percent since the last quarter of 2008.

Even when we look at grants and scholarships awarded‚ tuition expenses are actually rising faster than inflation. Student loans account for nearly 9 percent of all household debt in this country – up nearly 3.5 percent from where it was just 10 years ago. It’s the second-largest form of consumer debt after our houses.

So certainly‚ this is a problem that needs to be attacked form all angles.

But a measure that Congress passed in 2005 made it all but impossible to actually discharge any college debt through a bankruptcy.

The hope is that HR 532 will change that by at least granting allowances for private student loan debts. No doubt‚ the measure is going to receive some push back from the industry‚ so we do hope that the majority opinion – not the wealthy opinion – will prevail.

Currently‚ the bill‚ which has picked up 14 co-sponsors‚ is in the House Committee of the Judiciary. That’s a good start‚ considering the person who drafted it is a member of that panel.

We’ll be watching its progression closely.

If you are facing foreclosure in Woodland Hills‚ contact Cal West Law to schedule your free consultation. Call (800) 568-0707.

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