NACBA and Student Loan Discharge in Bankruptcy

Student loan discharge has come to the forefront of the National Association of Consumer Bankruptcy Attorneys (NACBA) agenda, and has caught the attention of some in congress, especially Senator Dick Durbin (D) from Illinois. Of the outstanding student loans, most notable are the private loans, as they do not have the same payback options as government based loans have.

Outstanding student debt has reached an estimated $867 Billion in the forth quarter of 2011, which is greater than the total US credit card debt. Senator Durbin introduced a bill in May to eliminate a 2005 nondischargability provision from the bankruptcy code.

In my office, I had a client that was tricked into entering into a student loan to become a airline pilot. The loan was granted to him after he informed the lender of a medical condition which he was concerned by prevent him from being able be a pilot. He was assured it would not be a problem, and the loan was granted. As it turned out, after a couple of years of schooling, he was informed he would not be able to become a pilot because of his medical condition. An adversarial hearing ensued, and the discharge of the student loan was denied. At the time of hearing, he was able to find employment as an apartment complex handyman.

Why was the loan made to begin with. The answer to that question is not known, however, at some for-profit schools, as much as 90 percent of their revenue comes from government loans and grants.

NACBA's work on students loans is indirectly reflected in a Bloomberg article, Durbin Urges Private Student Loans Be Discharged in Bankruptcy, by Janet Lorin, (March 20, 2012).