Bankruptcy ruling prompts overhaul of student loan debt

A recent decision by an Delaware bankruptcy judge to eliminate the debtor’s almost $100,000 Student loan debt excited lawyers for consumer bankruptcy who claim it re-directs an unjustly defined standard for “unfair financial hardship” all the way back to origins and could open the door for more general BankruptcyHQ student debt relief.

The notice, with a length of 29 pages, is believed to be the first notice to address medical cannabis use by students with student loans and is among the few notices to address the expiration of a payment deadline It was meticulously drafted and is likely to succeed in fighting the appeal, several lawyers claimed.

Bankruptcy and Student Loans How it currently works

Although it’s not impossible to have student loan debts wiped out by filing bankruptcy under the the current law, it’s not an easy task. To succeed, the majority of student loan borrowers must demonstrate that they suffer from an “undue hardship” that is an extremely difficult legal test. The bankruptcy code doesn’t specify in detail what it means to qualify as having an undue hardship, and therefore the bankruptcy courts been required to develop rules and tests (and some jurisdictions haven’t adopted the same standards or tests). In many states, loan borrowers must prove that they have an “certainty of despair” in their current situation.

The process of trying to show that there is an undue hardship can be a challenge. Students who want to discharge their loan in bankruptcy court must start the process of initiating an “adversary proceeding” which is basically the borrower must sue his lender of student loans in bankruptcy court in order to prove that they have met the standards. In the majority of cases the lenders for student loansincluding Department of Justice and the U.S. Department of Education and the U.S. Department of Justice are likely to oppose the borrower. Legal proceedings against borrowers can be long, exhausting and in the event that the borrower employs private legal counsel expensive, which may hinder their hardship argument. However, lenders have more resources than borrowers and can give them an advantage in the courtroom. In the end, many people don’t bother to have their student loans wiped out when they file bankruptcy.

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