Helping With Your Financial Future

The new Chapter 10 bankruptcy proposal may not be necessary

On Behalf of | Mar 15, 2021 | Uncategorized

Senator Elizabeth Warren has submitted a proposal to set parameters for the upcoming shift in policy regarding delinquent student loans for those strapped with debt after college, including Californians. The legislation that has been put forth sets up a new bankruptcy chapter designed specifically to qualify at least a portion of student debt for discharge similar to a Chapter 7 bankruptcy approval regarding credit card debt. While this is a current hot topic in Congress, the courts may be taking steps to address the situation before the law is changed through the District of Columbia.

Chapter 7 bankruptcy and college loan debt

Traditional Chapter 7 bankruptcy petitions are assessed based on petitioner income and outstanding unsecured delinquent debt levels. Petitioners have been eligible to reconstruct certain debts by reaching agreement to not include specific creditors in the discharge request. However, many petitioners have student debt that was previously never allowed in the discharge. That has changed in California now that a judge has recently allowed inclusion of student debt in one particular Chapter 7 bankruptcy filing.

What the ruling means for other California residents

The state of California is awash in residents with substantial long-term debt from delinquent student loans. The accrued interest then exacerbates the issue into a massive burden that will potentially never be fulfilled. And, it also applies to those who did not complete the educational program and work in lower paying positions today if they are even employed. This ruling sets precedent that student loans can be included in a Chapter 7 bankruptcy discharge if the totality of the circumstances justifies discharge inclusion.

What this means for California residents is immense. Now those needing to file a Chapter 7 bankruptcy petition can also request removal of college debt when their attorney can establish through all material evidence that the educational program was restrictive in some manner.