Case Could Allow Bankruptcy Courts to Dismiss Student Debt

October 9, 2015

A Federal Appeals Court in Boston is considering a case that could change the rules about student debt.

Currently, student loans cannot be dismissed in bankruptcy proceedings. However, a 65 year old man, Robert Murphy, is arguing that forcing him to repay hundred of thousands of dollars of debt would be an undo hardship.

Laws regarding student loans do allow an exception for undo hardship, but the phrase is not defined in the law. A court case that accepted a definition in which student loans greatly exceeded income could open the door for many more such claims.

This could eb a financial disaster for the U.S. Education Department and Educational Credit Management Corp. (ECMC), a loan servicer that has an exclusive contract to service many federally underwritten student loans. 

Arguing on Murphy's behalf, attorney John Rao said, "[M]any have already been burdened by the obligations for decades and, if denied a discharge, face a lifetime of crushing debt. A finding about whether a debtor’s hardship is likely to persist should be based on hard facts, not conjecture and unsubstantiated optimism." 


Experts Say 2005 Bankruptcy Law Did More Harm Than Good

October 6, 2015

Experts at the American Bankruptcy Institute webinar, held on October 6, stated that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)  has created obstacles for honest debtors, while doing little to prevent bankruptcy abuse.

By raising procedural barriers to bankruptcy, the law has "priced out" the poorest debtors, may can no longer afford to apply for bankruptcy protection.

Furthwmore, the experts disputed that bankruptcy abuse was widespread even prior to the law.

Read the full article at Bloomberg BNA