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Filing for bankruptcy can actually increase student loan debt

Thousands of college students across the country attend their university of choice with the help of student loans. However, many young students who graduate, including some in Tampa, are unable to find steady employment after their studies are over. This can leave them unable to pay off their student loans and in some cases can eventually force them to consider filing for bankruptcy; but there can risks involved.

Many attorneys report that more and more of their clients have ever-larger education debts. Some experts claim the U.S. Bankruptcy Code is not equipped to properly handle student loan debt. That’s because under the federal bankruptcy code, it is almost impossible for a person to get rid of student loans because they are not like other types of debt, such as credit card and medical debt. Those rules are in place in order to stop someone from filing for bankruptcy right after they leave college in an attempt to skip out on his or her loans.

Meantime, the Chapter 13 process doesn’t allow people to make full payments on student loans during the three-to-five-year bankruptcy period. This means lenders can even tack on additional fees, penalties and more interest to the loan balances. Therefore, student loans usually end up larger after bankruptcy. Now lawmakers, consumer advocates and bankruptcy attorneys are crying foul over these regulations.

Hopefully, lawmakers can help bring about change to these codes and restrictions in order to help those who find themselves in over their heads with student loan debt. Any person in the Tampa area in this situation might want to meet with an experienced bankruptcy attorney.

Source: The Wall Street Journal, “Student-Loan Straitjacket,” Katy Stech, Sep. 30, 2013.

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