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Senator pushes bankruptcy reforms for student loan debt

With a highly-competitive job market in Chattanooga, Tennessee, and across the country, people are looking for ways to distinguish themselves as the most qualified person for a job. As such, this tight economic situation has pushed many people to go to college or pursue further education. While advancing one's knowledge is a worthy goal, there have been side-effects for these actions: Many people have taken on high levels of student loan debt to finance their education.

In some cases, high student loan debts become a major problem when people are unable to find a job that can help them pay off their loans. Furthermore, student loans from private lenders are not dischargeable in Chapter 7 bankruptcy. Even if those with debt issues choose to take the step to clear debt and begin repayment, they cannot wipe-out their student debts, as is possible with many other kinds of debt.

As a potential solution to this vexing problem, U.S. Senator Dick Durbin urged Congress to consider allowing student loan debts to be discharged in Chapter 7 and other personal bankruptcy protection plans. According to the veteran lawmaker, "private student loans" are his top concern when it comes to the overall student debt issue. This comes on the heels of news that overall American student debt reached $867 billion by the end of last year. Now, student loan debts exceed the nation's sum of credit card debt.

The reason that student loan debt cannot be discharged through bankruptcy, as other unsecured debts usually can be, is because lawmakers once believed it would allow people to abuse the bankruptcy system. One national consumer advocate says the rationale behind this regulation is essentially unfounded, because there is no evidence to suggest this assumption is true.

The squeeze of increasing student debt burdens, rising tuition costs and a slowly recovering job market puts Tennessee residents in a bind. Education is a great way to help people fulfill their dreams, but unexpected financial burdens or unanticipated unemployment can push those with high levels of student debt into bankruptcy. Until bankruptcy statutes change, those in this situation can find debt relief through other means, not just limited to Chapter 7. Depending on how much personal debt a person carries, a bankruptcy professional can help them discover potential solutions in order to help them find a fresh start and pursue their personal ambitions.

Source: Bloomberg, "Durbin Urges Private Student Loans Be Discharged in Bankruptcy," Janet Lorin, March 21, 2012

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