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Student loan restrictions cause misery

One of the most common complaints about bankruptcy law is that student loans are specifically excluded from the list of debts that can be discharged.

Dischargeable debts, of course, are those that can be wiped out by declaring Chapter 7 or Chapter 11. They are typically debts that are not secured in any way, the way a car loan is secured by the car itself, which can be repo-ed away.

What dischargeability means

Dischargeable debts are obligations that can be wiped out by your bankruptcy discharge. This means that when you receive your discharge, you are no longer obligated to pay any of these debts and creditors cannot come after you to collect them.

Common examples of dischargeable debts include credit card debt, medical bills, personal loans and utility bills. This are the debts that are swept away in the bankruptcy process.

But not student loans. Student loans are no small thing. The total amount of unpaid student loans in the U.S. dwarfs the total amount of home mortgages.

Scammers and congressmen

Predators make the student loan exclusion by offering scams that promise to alleviate student debt - but they are just scams. Scammers profit by luring struggling borrowers with promises to lower or forgive debt. These phony-baloney debt relief companies charge individuals for government programs they can be accesses online with no charge. Some scammers have been known to access loan accounts, let payments lapse - leaving the borrower with seized tax refunds, garnished wages and wrecked credit.

It gets worse. The reason for excluding student loans? It is said that Congress voted to specifically exclude student loans because of nonpayment during the 1970s, as a kind of revenge for students protesting the Vietnam War and ignoring their loan obligations. The war is long since over, but the pain of non-dischargeability continues for young people who had nothing to do with the war.

The tip of the iceberg

Student loans are not the only non-dischargeable debt. Also excluded from discharge are child support, alimony, criminal fines, penalties and restitution, many tax obligations and debts acquired by fraud.

Certain student loans can be discharged, but these situations are very rare. We advice to those burdened by these loans is to look at the broader picture of their debt.

Your student loans may seem unbearable in combination with the other money you owe. But if these other debts are whisked away, you may finally be able to pay off these remaining debts.

And hope for friendlier relief from a more responsive Congress.

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