Like many of the discharge provisions found in the Federal Bankruptcy Code the law regarding the discharge of student loans has undergone numerous changes. Most of the changes to the dischargeability of student loans have focused on narrowing and almost eliminating a debtor’s ability to discharge student loan debt under either an Oklahoma Chapter 7 or Oklahoma Chapter 13 bankruptcy.
Prior to initial restrictions on discharging student loans in the late 1970s, many new graduates were able to discharge all the student loan debt if they hadn’t yet secured meaningful employment subsequent to graduation. The loop hole basically allowed a debtor to keep his or her income low by not having meaningful employment thereby in his bankruptcy budget analyses it appeared as if the debtor is unable to pay back the student loan.
The first major restrictions on the dischargeability of student loans attempted to limit the discharge of educational loans that were given by nonprofits or were guaranteed by the Federal Government. This meant that although guaranteed student loans could not be discharged the student loan was still dischargeable so long as it was made to the student by a private lender regardless of its intended use being for school only.
With the passage of the October 17, 2005 Bankruptcy Abuse Prevention Act (BAPCPA) discharging both private and guaranteed student loans is limited to an extremely narrow set of circumstances. The new laws have created a standard that must be met before the student loan discharge will be granted. This standard is referred to as undue hardship on the debtor. Undue hardship means different things to different debtors depending on what the law will recognize as undue hardship. Under the new law the debtor must have such a high debt and must be in a financial position that paying the loans back is nearly impossible. The impossibility of repayment doesn’t simply look to the debtor’s current financial situations but rather the possibility of the debtor changing their financial situation in the future. An example may be that the debtor is permanently disabled thereby unable to earn any significant amount of money for the entirety of their life. Another circumstance may involve a single parent with a larger number of dependents and a skill set that will make meaningful employment next to impossible. In any event, the percentage of those debtors attempting to discharge the student loan debt and those actually receiving the discharge is near insignificant.
If you would like a free consultation regarding your student loans in an Oklahoma Bankruptcy call us at EZ Oklahoma Bankruptcy (918) 637-1546 for a detailed discussion of your particular situation.