Let me start by saying that bankruptcy is something that should never be rushed into. It has serious repercussions for your credit and the record of it stays with you for a long time. That being said, it can provide a way out of serious debt when other paths are closed. Unless that serious debt is student loan debt. Lawyers.com maintains a list of types of debt that can not be discharged through bankruptcy.
Let’s just examine that list.
- Taxes and tax liens
- Alimony and Child Support
- Debts obtained through fraud, false pretenses or false representation
- Debts you failed to schedule in time to allow creditors to file proofs of claim (unscheduled debts)
- Debts for fraud while you were acting in a fiduciary capacity, or for embezzlement or larceny
- Debts for willful and malicious injury
- Debts for fines or penalties to governmental units
- Debts for judgments in wrongful death or personal injury lawsuits resulting from motor vehicle, vessel or aircraft accidents while you were intoxicated
- Condominium or cooperative association fees or assessments
- Student Loans
So the entire list is comprised of debts that one incurs through criminal activity, negligence, and paying for college. Does that make any sense to any one? Well, if you have a vested interest in making and collecting those loans then, yes, that makes perfect sense. Check that list again. You might notice that student loans are the only loans on the list. No other type of loan is subject to this provision.
This wasn’t always the case. The Bankruptcy Reform Act of 1978 included a stipulation that disallowed bankruptcy for student loan debt for five years after the first payment was made. This was later extended to seven years, and, in 1998, the ability to discharge the debt was removed completely. Up to this point this only applied to federal student loans, this was amended in 2005 to include private student loans.
In short, the federal government equates student loan debt with criminal behavior, but they aren’t completely to blame. Major lenders, such as Sallie Mae, benefit from this and have lobbied aggressively to make sure that it is so. The government has the power to collect these debts in ways that private lenders cannot, so they have no incentive to change the system.
There needs to be a ground level campaign to gets these laws changed. Fortunately, there are organizations, such as The Project On Student Debt, that are fighting the good fight, and they need all of our support.