Bankruptcy Indiana

Student loans are not one of the three major causes of bankruptcy - yet. But with the average graduate facing repayment of $20,000 to $40,000 before even starting a career, it's easy to see what a big problem student loans are getting to be.  As current law would have it, student loans are almost never dischargeable through bankruptcy. Yet, for someone paying hundreds of dollars each month towards student loans while keeping up with all the other costs of living, a job layoff or medical emergency could make bankruptcy the only alternative.

It's ironic, I often think, that three of my four Indiana bankruptcy law offices are in towns where colleges are located (Indianapolis, Bloomington, Anderson), yet I'm limited in the kinds of student loan debt help I and my colleagues can provide. Debate has continued for years about treating student loans and mortgage loans the same as other forms of consumer debt, but, up until now, no comprehensive legislative relief for student loan problems has been passed.

In just the past couple of weeks, Congress has revisited the student loan debate with a vengeance. The House voted in favor of a giant overhaul of college aid programs.  If the bill were to be enacted into law, it would mean that private lenders (such as Indianapolis
and Muncie-based Sallie Mae) would no longer receive subsidies for making student loans, which would then virtually put them out of business, leaving the federal government in charge of student lending. There is quite a bit of opposition to the bill, and the debate will continue in the Senate.

Opponents of the bill correctly point out that consumer choice would be limited without private lender competition. Sallie Mae itself has offered a counter proposal to the government’s plan, to which several nonprofit state agencies, stand-alone lenders, loan servicers, consumer banks and nonprofit state-based guaranty agencies support.

Despite the fact that bankruptcy is not a remedy for student loan debt, as a bankruptcy lawyer in Indiana, I often deal with problems related to student loans, including problems with parents who took out home equity loans to help pay for their children's education and who are now in financial trouble themselves!

What's more, I know how crucial the availability of jobs is to the success of the bankruptcy process in general.  Chapter 7 bankruptcy filers need to begin paying their bills and get back on their financial feet, while Chapter 13 filers need to keep up with their court-supervised debt repayment plans.  All those things depend on income from jobs.  If Sallie Mae's business is severely hurt by new legislation, it could be forced to cut one third of its work force, according to a spokesperson from Sallie Mae.

Some of the recent new legislation, especially the part allowing parents to put off making payments on PLUS loans until students are finished with school, were a step in the right direction. What I would really like to see (and I'm certainly not alone in this opinion) is legislation providing for modification and partial forgiveness of student loans through the bankruptcy safety net process.