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Why Can’t You Erase College Tuition Debts in a Bankruptcy?

In America, most private debts outside of home mortgages fall into three primary categories: auto loans, credit cards and student loan obligations. This last category, tuition debt, topped out at $1 trillion in 2012, surpassing the other two categories as it grows as a percentage of total debt in the United States. According to the Federal Reserve Bank of New York, 5.4 million of the 37 million borrowers who are paying on student loans are at least one payment (or many more) behind.

This is thought to be due to a faster-than-inflation rise in tuition over the past few decades. But as students graduate with debts on average of $22,000 – $27,000, they also face dim employment prospects in a depressed economy.

Student loans almost always non-dischargeable in bankruptcy

Concern that bankruptcy was becoming a tool for ex-students to get out of tuition repayment obligations drove the passage of the Bankruptcy Amendments and Federal Judgeship Act of 1984, which excepts private student loans from all non-profit lenders, including colleges and universities. The law was made more stringent in subsequent years, particularly with the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act, causing the exceptions to apply to all loans — private and government sponsored.

The only way to get student loans discharged is when a bankruptcy filer can prove undue hardship. Anyone trying to establish that such conditions exist would need the counsel of a bankruptcy attorney, as the means test is tough. Filers must demonstrate they cannot maintain even a minimum standard of living, are unable to afford basics such as an Internet connection or a cell phone, and that they are unlikely to achieve an increase in income in the future, perhaps due to illness or disability.

To learn more about discharging your debts, contact a qualified bankruptcy lawyer.

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