Student Loan Debt and Bankruptcy
People who have student loan debt and have filed for bankruptcy now have temporary relief. A student loan giant made an agreement to suspend collection activities of some borrowers who have filed for bankruptcy. Navient, which is a student loan provider, has agreed to stop collection activities on loans for borrowers who filed for bankruptcy after October 2005. Navient is still able to send the borrowers statements every month, however, they are not allowed to aggressively pursue debt collection.
The plaintiffs allege that Navient continued to pursue collection activity after they filed for bankruptcy. They also called their employers and relatives multiple times throughout the day. Patricia Christel, who is an employee of Navient, was contacted for comment. Though she did not return the phone call, she did send an email stating that Navient supports allowing borrowers to discharge their debt in bankruptcy if the borrower attempted to pay their loan back for several years and is still struggling.
Although you can get rid of most debts with bankruptcy, student loan debt is known for being nearly impossible to discharge. However, several attorneys across the country have attempted to challenge this. If they win this lawsuit, then this can perhaps be one of their biggest legal victories.
In 1970, congress made changes in order to make it more difficult for people to get rid of student loan debt when they file for bankruptcy. They stated that a loan cannot be discharged if it meets one of the following criteria:
1. It is given by a non-profit organization.
2. It is a federal loan.
3. It is an educational loan.
It is possible for a person to get a loan from a for-profit company. However, it has to be made for educational expenses. The only way for a borrower to get student loan debt discharged is to prove that paying the loan would be an undue hardship. This is something that is extremely difficult to prove. Many attorneys have argued that lenders are collecting on loans do not actually fall into one of the categories that do not fall into one of the aforementioned categories. Therefore, they can be discharged in bankruptcy.
Attorneys have been trying to help people get their loans discharged in bankruptcy for years. Dalie Jimenez is a professor at the University of Connecticut School of Law. She has stated that bankruptcy judges often feel as though they have little leeway when discharging student loan debt. In order for a debt to classified as undue hardship, one must be unable to pay back the loan now or in the future.
Dalie stated that some judges are willing to reevaluate whether some loans are dischargeable. The judge who is overseeing the case has not made a ruling yet. However, he has encouraged Navient to voluntarily stop pursuing people who have filed for bankruptcy.
John Rao is an attorney at the National Consumer Law Center. He stated that it is too early to tell if this ruling will provide permanent relief for people who file for bankruptcy. Even if it does provide permanent relief, it will only affect a small percentage of Navient borrowers. It will still help provide relief for people who are dealing with student loan debt.
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