Unsecured creditors do not have an interest in the debtor’s property and the debt is not one of the defined priority claims. Non-priority claims cover the following types of debt, most of which are almost always dischargeable in bankruptcy:
- Medical bills, often the hugest debt of all, and possible the single most important reason people have to file for bankruptcy protection.
- Bills, collection suits, or judgments for credit cards
- Magazine subscriptions
- Utility bills and cell phone bills
- Wages owed to employees in excess of the Priority Claim limit of $12,745.00
- Local taxes
- Debts from individuals and businesses for goods or services
- Student loans
A student loan is a type of unsecured non-priority claim that is usually not dischargeable in bankruptcy. Student loans are dischargeable in bankruptcy only if the debtor can prove in a Dischargeability Hearing that repaying them would cause an undue hardship to the debtor. Under prevailing bankruptcy case law, this is an almost impossible standard to meet.
Student loan balances are often in the hundreds of thousands of dollars and many college graduates have an extremely difficult time finding jobs in which they can earn enough to repay their student loans. Huge balances often follow graduates and even their parents who may be retired or living on fixed incomes. Because of this, the National Association of Consumer Bankruptcy Attorneys and other consumer advocacy groups are lobbying Congress to make necessary changes to the Bankruptcy Code. These proposed changes would make more student loans dischargeable under conditions more in line with the high cost of higher education and the current economy.
In the meantime, there are certain applications that can be made to the federal government to adjust the repayment terms – but not the balance – of delinquent or even defaulted student loans. If you are in this situation, you should consult student loan lawyer Robert G. Williamson about Student Loan Help.