People in massive debt hope Trump will let them file for bankruptcy

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Denise Sparks graduated from college in 1995 with $ 30,000 in debt. Then her life became a challenge.

First, there was the divorce from her husband, which left her to raise her two children on her own. Then she fell ill and underwent several operations. Along the way, a psychiatrist diagnosed her with depression, bipolar and post-traumatic stress disorder.

She was often absent from work and did not have enough money to send her student loan payments. Today, her debt, with interest, penalties and fees, stands at over $ 230,000.

“I can’t plan for my retirement,” said Sparks, 53. “I’ll die before this can be paid back.”

Sparks has contacted a number of attorneys where she lives in Phoenix regarding the bankruptcy filing, but to no avail.

“A lawyer just interrupted me,” she said. “He didn’t want anything to do with it.”

Denise Sparks at her home in Phoenix, Arizona.

Source: Warren Clabuesch

This is probably in part because federal laws do not allow the discharge of student loans in bankruptcy unless the borrower can prove that the debt constitutes “undue hardship.” This term may sound relatively benign, but legally the bar is high: borrowers often need to show a “certainty of desperation.”

A recent development has made Sparks a little less desperate.

She found out, through a Facebook group post, Student Loan Justice, that the Education Department was asking the public if it was too hard for Americans to write off student debt in bankruptcy, reporting that he might consider facilitating the process.

Comments from student borrowers poured in.

My sadness stems from a desperate federal student debt situation that I have lived with for two decades, “wrote John Koch.”The principal balance has quintupled from what it was originally and is now around $ 450,000 and continues to grow. “

The demand for public comment prompted some advocates and experts who have followed the issue to do a double take.

“I was frankly surprised,” said John Rao, an attorney at the National Consumer Law Center. “This administration has not been very consumer friendly.”

Indeed, the Trump administration has taken steps that advocates describe as favoring the student loan industry over its borrowers.

Yet changing bankruptcy rules could also be in the best interests of the student loan industry, said Ed Boltz, vice president of the National Association of Consumer Bankruptcy Attorneys.

This is because the Department of Education often demands that federal student loan managers like Navient oppose bankruptcy requests from student loan borrowers – even though the prospects for collecting that debt are low, has said Boltz.

In many cases, “they know they will never get a dime, but they have to go all the way,” he said.

This dynamic could explain why Navient, one of the nation’s largest loan managers, lobbied for the government to allow the release of private and federal loans in bankruptcy.

I will die before this can be paid back.

Denise sparks

Student loan borrower

The notice said the department is likely considering giving more room for student loan managers not to dispute certain claims, Boltz said.

“They are likely to look and say, ‘This is a debt we will never collect,'” he said. “Why are we chasing him? “”

Certainly, some people argue that it is unfair to let student borrowers give up their loans in bankruptcy because taxpayers can absorb the costs. In addition, there are logistical constraints: the “undue hardship” requirement is built into the bankruptcy code and it would be up to Congress to amend it.

But advocates say if the Education Department chooses and chooses which bankruptcy petitions it challenges more wisely, the benefits would flow to consumers and loan holders.

Debbie Baker, a public school teacher in Jenks, Oklahoma, wrote in the ministry’s public comments that her student debt was on track to rise from $ 34,000 to over $ 200,000.

“I can’t fight and I can’t escape,” she wrote.

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