Bankruptcy And Student Loans

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Bankruptcy & Student Loans
KaTonya Jenkins
MGMT520
DeVry University
Dr. Michael Carr
February 15, 2015

Bankruptcy & Student Loans
The three key chapters of bankruptcy most commonly filed in the United States are Chapter 7, 11 and 13. In Chapter 7 bankruptcy, the “bankruptcy trustee gathers and sells the debtor's nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) (United States Courts, 2015).” Under this section, the debtor has a chance to keep some property that is considered in the bankruptcy code, but will have to liquidate their remaining assets to pay creditors. Filing Chapter 7 can also result in the loss of property, such as office buildings and other owned real estate. In Chapter 11 bankruptcy, “ordinarily is used by commercial enterprises that desire to continue operating a business and repay creditors concurrently through a court-approved plan of reorganization. The chapter 11 debtor usually has the exclusive right to file a plan of reorganization for the first 120 days after it files the case and must provide creditors with a disclosure statement containing information adequate to enable creditors to evaluate the plan (United States Courts, 2015).” In Chapter 13 Bankruptcy, also known as a “wage earner’s plan”, the individual is offered several options. According to the U.S. Courts, “individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. If the debtor's current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period "for cause” (United States Courts, 2015).”
In today’s economy, more people are borrowing money to pay debts, pay for education, and to finance their lives with money their job does not supplement. According to Business Insider, “William Brewer, president of the National Association of Consumer Bankruptcy Attorneys states, the amount of student borrowing crossed the $100 billion threshold for the first time in 2010 and total outstanding loans exceeded $1 trillion for the first time last year (Business Insider, 2012).” This is in large part due to the rising costs of tuition and housing at colleges. Students who attend Ivy League and Private Institutions often find themselves in the most debt. College graduates are finding that the amount they are spending to obtain a degree is not the same return investment they were looking for once obtaining a career. According to Sandie Free Press, “The problem is when (and if) that student has obtained that degree, they find that (a) they can’t get that lucrative job because either that job isn’t available or their degree is worthless or (b) they have to move back in with their parents in order to afford the payments on their student loan (Lawrence, 2014).” In what I have experience in being a post 2009 graduate, the majority of my friends lived at home for several years until around 28 or 29 years old because not only was finding a job difficult, but finding a job and affording student loan payments at the same time were also difficult. For students who don’t have the option to move back home rent free to pay off student loan debts, many find roommates to cut the cost of living to be able to afford student loan payments.
The rising costs have not given many graduates much hope in today’s economy. According to Business Insider, “The National Association of Consumer Bankruptcy Attorneys recently reported that 81 percent of those professionals surveyed said that the number of potential clients with sizable student loan balances has increased either “significantly” or “somewhat” in the last three or four years (Business Insider, 2012).” Unfortanately, the option to wipe out student loans in bankruptcy is not an option. If the loan ever goes into default, wages can be garnished to cover
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