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Minneapolis Bankruptcy Law Blog

Is it really impossible to discharge student loans in bankruptcy?

When it comes to the notion of discharging student loans via bankruptcy, the view among many Americans seems to be that it is virtually impossible and perhaps not worth the effort.

According to some experts, however, this is not necessarily the case, as discharging student loan debt in bankruptcy, while difficult, can be accomplished in certain circumstances.

By way of illustration, they point to a 2011 study published in the American Bankruptcy Law Journal, which found that only 0.1 percent of people with student loans included them in their bankruptcy filings. However, the study also found that roughly 40 percent of this small majority who included their student loans in their bankruptcy filing did see some -- or even all -- of this debt discharged.

Some important background information about Chapter 13

When a person is facing significant financial difficulties and someone mentions bankruptcy as a potential option, there is a very good chance that they will immediately discount the idea either because 1) they don't fully understand the process or 2) they are afraid of what it entails.

This is unfortunate because bankruptcy can provide people facing seemingly unmanageable levels of debt with a much-needed lifeline without serving to turn their entire world upside down.

In light of this reality, our blog will take a closer look at Chapter 13 bankruptcy over the coming weeks in an attempt to provide some valuable insight into how the process works and, more significantly, to debunk certain myths.

Study indicates debt may impact physical health

There are many reasons that residents of the Twin Cities might find that they are facing financial difficulty. Financial debt can hinder one’s efforts to move ahead in life and achieve certain goals. In the past it has also been linked to adverse psychological health. According to scientists, it may hinder one’s physical health as well.

Researchers from McGill University and Northwestern University made the connection last year. Their findings were published in the journal of Social Science & Medicine. In reaching that conclusion the scientists analyzed data provided by the National Longitudinal Study of Adolescent Health.

Popular race called off due to organizer's financial difficulties

While many people here in Minnesota view the summer as a time to get outside and relax with a good book, golf club or fishing pole in their hand, still others look at it as a time to get outside and get active.

Indeed, a simple Internet search would likely turn up a regular schedule of races, triathlons, marathons and other scheduled events where contestants push themselves to physical extremes.

As it turns out, local athletes won't be able to participate in one of the more anticipated events of the summer due to financial problems on the part of the race organizers.

Experts warning consumers about student loan scams

Consumer advocacy groups, as well as both state and federal officials have been sounding the alarm about the services offered by unlicensed debt settlement companies for years. These efforts have been driven in large part by the seemingly endless string of horror stories outlining how deeply indebted people have handed over their hard-earned money only to learn that the promises of debt resolution were hollow.

While the domain of unscrupulous debt settlement companies has largely been confined to the area of credit card debt and mortgage debt, recent reports indicate that they are now setting their sights on student loan debt.

This is perhaps not unsurprising given that figures show more than 40 million people here in the United States are carrying over $1 trillion of student loan debt, with many of them struggling to find suitable employment.

How exactly are these unlicensed debt settlement companies victimizing those with student loan debt?

Study finds Minnesota has some of the highest student debt levels

Almost everyone will agree that one of the most important things that young people can do to make themselves attractive to employers is secure a college degree. At the same time, however, almost everyone will agree that actually securing a degree will likely prove to be a very costly proposition due to skyrocketing tuition costs.

Indeed, statistics show that while the average level of student loan debt stood at $18,650 in 2004, it jumped to almost $30,000 in 2012.

Despite this stark economic reality, however, young people appear to be as committed as ever to doing whatever it takes to graduate, as the number of students taking out loans to finance their education jumped to 71 percent by 2012.

Experts advise when to keep your credit card in your wallet

There is no denying that merchants have made it much easier to use credit cards over the last few decades. Now, consumers can pay for everything from groceries and gas to movie tickets and even home repair services with just a swipe.

Even though this convenience is undoubtedly appealing and regular credit card use can serve to build credit history, it's nevertheless important for consumers to exercise some restraint when reaching for their plastic, as debt -- and interest -- can accumulate significantly faster than they might think.

Indeed, financial experts have indicated that there are certain scenarios in which consumers perhaps want to avoid using their credit cards altogether in order to save themselves potential money problems further down the road.

Bill calls for bankruptcy courts to be more open to student loans

The unfortunate reality for many young people is that it is extremely difficult to discharge student loan debt -- both federal and private -- via the bankruptcy courts.

That's because those looking to have their educational debt eliminated via Chapter 7 or Chapter 13 must be able to prove to the bankruptcy court that repaying their student loans would result in "undue hardship" for them or their dependents.

In general, the bankruptcy courts use a three-part test to determine whether this undue hardship is present in a particular case.

  • Evidence has been presented showing that you would not be able to maintain a minimal standard of living if forced to repay the student loans.
  • Evidence has been presented demonstrating that the financial hardship will likely endure for the majority of the repayment timeframe for the student loans.
  • Evidence has been presented indicating that you have at least made a good-faith effort to repay the student loans.

Don't let your credit card cause the summertime blues

After months of hiding indoors from falling snow and subzero temps, people are finally free to go out now that summer is in full swing here in Minnesota. While people are understandably anxious to make up for lost time by hitting the lake, heading to the golf course or driving to the family cabin, experts are warning not to let this rediscovered laid back-attitude extend to finances -- especially credit cards.

First and foremost, experts urge people to resist the urge to max out their credit card to cover the cost of a luxurious vacation package, new convertible or any other major expense over the next few months, as doing so can have major repercussions for their credit score.

SCOTUS bankruptcy case only provides some answers

Back in November, our blog discussed how the Supreme Court of the United States introduced a significant change in the bankruptcy law landscape due to its decision in Stern v. Marshall, the case most people recognize as involving the inheritance battle between the late Anna Nicole Smith and the heirs of her deceased oil tycoon husband.

Here, the court questioned the ability of bankruptcy judges to hear and issue binding rulings in certain matters before ultimately stripping them of the authority to decide so-called "non-core" matters, meaning those not related to dividing the assets of debtors among creditors.

In other words, SCOTUS essentially reaffirmed the authority of Article III judges (i.e., federal district court judges, appellate judges, etc.) to handle these non-core matters.

Whatever legal scholars thought of the decision, there was universal agreement that it created a degree of uncertainty within the U.S. bankruptcy court system concerning the ability of bankruptcy judges to hear and issue binding rulings in certain matters.

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Huffman, Usem, Crawford & Greenberg, P.A., is just 10 minutes from the Hennepin County Courthouse in Minneapolis, Minnesota, and represents clients throughout the United States, Canada and Minnesota, including the cities of St. Paul, Golden Valley, Plymouth, St. Louis Park, Hopkins, Minnetonka, Wayzata, Edina, Brooklyn Park, Brooklyn Center, Anoka and Maple Grove, as well as Hennepin County, Ramsey County, Anoka County and Scott County.

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