The “Occupy Wall Street” movement has created many spinoff movements all over the country like the one here in San Diego. After hearing criticism for their lack of coherent demands, the “Occupy Chicago” chapter came out with a list of demands on Monday. Among other things, like taxing the wealthy and attacking Wall Street, they want student loans forgiven. I argued in a blog that I posted Sunday on the Occupy San Diego movement that student loans should be dischargeable in bankruptcy.
In the face of the bailouts that Wall Street firms and banks received more and more people are asking “where is our bailout”? Regular people have a tremendous amount of debt which they cannot afford and they believe that justice demands that they need some consideration from government. It is true that almost 50% of people pay no income taxes but should we bailout the 99% with massive wealth transfers?
I say no. Most people in this country will not go for that. I have argued for years on my blog that a bailout plan already exists for the 99% of us that are neither rich nor giant corporations. It’s called bankruptcy and bankruptcy allows you to legally walk away from your debts and have them discharged so you no longer owe them. You can then get a fresh start debt free and keep what money you earn from employment. Everyone can avail themselves of bankruptcy. You don’t have to be a privileged person or corporation to get it. In fact if you make too much money you will be means tested out of a chapter 7.
So bankruptcy is available for regular people but there is a problem. Student loans cannot be included in bankruptcy. Student loans currently are not dischargeable in bankruptcy. They do therefore indeed last forever or until you allege “undue hardship” which is very hard to prove. If these student loans were to be included in the lists of debts that people could discharge in bankruptcy then regular people would not be saddled with them forever. They could escape them and move on in life with their student loans forgiven.
This could be done so much more easily and fairly in the context of bankruptcy than through some government blanket forgiveness. Bankruptcy has been around for hundreds of years and the systems are in place to handle forgiveness of debt through the filing of bankruptcy. There are trustees and judges to oversee each individual to make sure that the people asking for forgiveness really can’t afford to pay these debts back because the have neither the income or assets to do so.
In bankruptcy there are even proscribed exemptions that allow each person to keep a certain amount of property. For most of the 99% this would amount to people keeping all of their property because most people don’t have more than these allowed exemption amounts.
This solution will also be so much more palatable to the American public. It allows the forgiveness of the student loan debt but within the confines of the bankruptcy system. Each individual would have to file for bankruptcy to get his student loan debt forgiveness. He would then be examined by a Trustee and he would face a judge if fraud or other problems came up. His income and expenses would be looked at to determine that he could not pay his debts with his current income and thus he is formally bankrupt. Those who could afford to pay the loans would then have to do so in some form but many many student loan debtors would be able to escape these loans if they were dischargeable in bankruptcy. Bankruptcy is no blanket gift.
And it would be fair. Many people with student loans cannot afford to pay these loans and they have very little hope of paying them back. They are under employed or more likely unemployed and they cannot afford their living expenses let alone these student loans that have not even landed them a job. It is simply not fair that a person who used their credit cards to excess can discharge those debts but the person trying to get an education and a job can never escape them even if they have no money and no job.
But many people will say that if we make student loans dischargeable in bankruptcy then student loans will be harder to get. Maybe that is a good thing and people won’t borrow money for degrees that won’t lead to a job. But I also believe that as credit cards are still obtainable by most people today and they are dischargeable in bankruptcy. Bankruptcy has not stopped that industry and dischargeable student loans will not stop lenders from lending money for these loans either.
It also should not matter whether the loans are government or private. If they are private then the loans should be treated like credit cards and if government loans are owed then forgiveness of these loans is only fair in light of the bailouts given by the government to the financial industry. Whether government or private though the effect is the same on people. They can’t afford to pay them back in many cases. (Remember also that IRS tax debt is dischargeable after only 3 years and the IRS still continues to operate).
And for further fairness you could make student loans dischargeable after a period of time say 10 or even 20 years. If the student has not paid them back by that time then they are certainly having a problem and they probably can’t pay them back. It is only fair to allow people to escape them in time.
I am a bankruptcy attorney practicing bankruptcy law in San Diego, CA. For further information please visit my website at www.farquharlaw.com or www.freshsatartsandiego.com. Or call my office for a free consultation at (619) 702-5015. If you or someone you know are considering bankruptcy then get my Free e-book “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPCTY FILING” by e-mailing me at firstname.lastname@example.org.