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I have been thinking about the following lately... Myth: Student loans are not dischargable in bankruptcy. Truth: Student loans are dischargable in bankrupt

I have been thinking about the following lately... Myth: Student loans are not dischargable in bankruptcy. Truth: Student loans are dischargable in bankruptcy, albeit at a higher standard than other personal debts. Now the myth, or what one might call the propaganda, is generally attributable student loan debt holders who don't want debtors knowing and worse availing themselves to their rights. However, what I find most odd is the myth/propaganda is now actually perpetuated more by people who know the truth but want student loan reforms. For example, they will generally ignore the ability to discharge student loans in bankruptcy at all or other methods of forgiveness such as "total and permenant disability". Also I notice when confronted with the truth they perpetuate the myth by exaggerating how many people actually qualify for relief.

hackits 10y ago
Is a student loan a full Full Recourse debt? My understanding with the bankruptcy process here in Australia is even though you may declare bankruptcy it is still up the proceeding Judge to make the determination based on your circumstance and sometimes can deny the claim for bankruptcy but require the creditor to re-adjust the term of the mortgage either via change in the debit amount or the repayment schedule.
- breischl 10y ago
  I imagine this kind of thing varies between countries. It appears the standard in the US is that if repaying the debt would be an "undue hardship" then a judge may discharge it in bankruptcy. You can also file a different kind of bankruptcy that can change your repayment terms, though I think mostly the schedule rather than the actual amounts. This is all from ~5 minutes of research though, so take with salt as appropriate. http://www.studentloanborrowerassistance.org/bankruptcy/ http://www.studentloanborrowerassistance.org/bankruptcy/
MOARDONGZPLZ 10y ago
That's not really a "lie" per se. In the USA it would only be dischargeable by 0.01% of people, or some freakishly low number. The standard of discharge wrt student loans is so ridiculously high. The case law shows that a person, to get them discharged, essentially needs to have zero chance of ever being able to hold a job or work again. There have been quadriplegics who couldn't get them discharged for hardship. The bar is so high, it is essentially impossible for all but the severely, severely unfortunate among us. If you have the potential to hold any sort of job at any point in the future, it's effectively impossible to discharge. So while it's not technically true, the ability to discharge student loans is such an edge case, saying they're nondishargeable is effectively true.
- countingteeth 10y ago
  It's neither a lie nor a myth, yet the truth is surprising. A 2011 study found only 0.1% of student debtors in bankruptcy even apply for discharge of student loans. Yet of that self-selecting group, 40% were successful. The question is why more don't apply for discharge, and how successful they might be. Regardless, this does show that "student loans are not dischargable in bankruptcy" is generally true, given a discharge rate of only 0.04%. Source: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1894445 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1894445 Iuliano, Jason. "An Empirical Assessment of Student Loan Discharges and the Undue Hardship Standard." Princeton University, Woodrow Wilson School of Public and International Affairs, Department of Politics. July 24, 2011. 86 American Bankruptcy Law Journal 495 (2012)
  - JoeAltmaier 10y ago
    I guess that means 60% are unsuccessful. My friend who was jailed for 5 years could not even get a deferment. He had large fines added to his loan for missing payments. In prison he could only earn some trivial amount (cents on the dollar) for working, so it was impossible to keep up with the loans.
    - ci5er 10y ago
      The decision about whether one can discharge or not discharge in bankruptcy is determined by the court. The decision about whether one can defer or not defer is determined by the loan administrator. I'm guessing that upon release, your friend would be (have been) an outstanding candidate for being able to discharge the loans (and penalties and interest) through a bankruptcy proceeding.
  - smallnamespace 10y ago
    > The question is why more don't apply for discharge Maybe a substantial number did the research and determined they weren't eligible?
    - will_brown 10y ago
swissoak 10y ago
The issue is that being able to discharge student loans is more a function of either becoming a near-vegetable or losing both arms and both legs. It's not really the result of bankruptcy as most people know it.

hackits 10y ago

Is a student loan a full Full Recourse debt? My understanding with the bankruptcy process here in Australia is even though you may declare bankruptcy it is still up the proceeding Judge to make the determination based on your circumstance and sometimes can deny the claim for bankruptcy but require the creditor to re-adjust the term of the mortgage either via change in the debit amount or the repayment schedule.

breischl 10y ago
I imagine this kind of thing varies between countries. It appears the standard in the US is that if repaying the debt would be an "undue hardship" then a judge may discharge it in bankruptcy. You can also file a different kind of bankruptcy that can change your repayment terms, though I think mostly the schedule rather than the actual amounts. This is all from ~5 minutes of research though, so take with salt as appropriate. http://www.studentloanborrowerassistance.org/bankruptcy/ http://www.studentloanborrowerassistance.org/bankruptcy/

MOARDONGZPLZ 10y ago

That's not really a "lie" per se. In the USA it would only be dischargeable by 0.01% of people, or some freakishly low number. The standard of discharge wrt student loans is so ridiculously high. The case law shows that a person, to get them discharged, essentially needs to have zero chance of ever being able to hold a job or work again. There have been quadriplegics who couldn't get them discharged for hardship. The bar is so high, it is essentially impossible for all but the severely, severely unfortunate among us. If you have the potential to hold any sort of job at any point in the future, it's effectively impossible to discharge. So while it's not technically true, the ability to discharge student loans is such an edge case, saying they're nondishargeable is effectively true.

countingteeth 10y ago
It's neither a lie nor a myth, yet the truth is surprising. A 2011 study found only 0.1% of student debtors in bankruptcy even apply for discharge of student loans. Yet of that self-selecting group, 40% were successful. The question is why more don't apply for discharge, and how successful they might be. Regardless, this does show that "student loans are not dischargable in bankruptcy" is generally true, given a discharge rate of only 0.04%. Source: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1894445 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1894445 Iuliano, Jason. "An Empirical Assessment of Student Loan Discharges and the Undue Hardship Standard." Princeton University, Woodrow Wilson School of Public and International Affairs, Department of Politics. July 24, 2011. 86 American Bankruptcy Law Journal 495 (2012)
- JoeAltmaier 10y ago
  I guess that means 60% are unsuccessful. My friend who was jailed for 5 years could not even get a deferment. He had large fines added to his loan for missing payments. In prison he could only earn some trivial amount (cents on the dollar) for working, so it was impossible to keep up with the loans.
  - ci5er 10y ago
    The decision about whether one can discharge or not discharge in bankruptcy is determined by the court. The decision about whether one can defer or not defer is determined by the loan administrator. I'm guessing that upon release, your friend would be (have been) an outstanding candidate for being able to discharge the loans (and penalties and interest) through a bankruptcy proceeding.
- smallnamespace 10y ago
  > The question is why more don't apply for discharge Maybe a substantial number did the research and determined they weren't eligible?
  - will_brown 10y ago

swissoak 10y ago

The issue is that being able to discharge student loans is more a function of either becoming a near-vegetable or losing both arms and both legs. It's not really the result of bankruptcy as most people know it.