06-24-2022, 10:33 AM
In bankruptcy, unsecured debts are discharged...as in "forgiven." A student loan is, by definition, an unsecured loan.
https://www.nolo.com/legal-encyclopedia/chapter-7-bankruptcy-faq.html
Chapter 7 bankruptcy wipes out most types of unsecured debt. Unsecured debts are debts that aren't guaranteed by collateral property. (A mortgage is a secured debt guaranteed by the home; an auto loan is a secured debt guaranteed by a vehicle.) Unsecured debts wiped out by Chapter 7 bankruptcy include credit card debt, medical bills, and gasoline card debt.
However, you can't wipe out all unsecured debt. For instance, child and spousal support and student loans (except in limited circumstances) are nondischargeable—you'll remain responsible for repaying them after bankruptcy. Some other debts might not be dischargeable if the creditor objects, such as recent debts for luxury goods, debts incurred based on fraud (such as lying on a credit application or writing a bad check), and tax debts first due within the previous three years. Learn more about which obligations remain after Chapter 7 bankruptcy in What Bankruptcy Can and Cannot Do and When Chapter 7 Bankruptcy Isn't the Right Choice.
Here is the secret the politicians forgot to tell you. There were already ways prior to this to get student loan debts discharged even though you couldn't do it through bankruptcy. So this is just doing for everyone what those in the know were already doing for themselves. If your concern is the moral hazard, I agree. But there is a moral hazard built into the system the other way too. It's too easy to get a student loan in the first place precisely because they lenders know they are federally guaranteed. The lenders aren't worried about whether or not there is a potential for payout later. The entire SYSTEM is broken. There are some IT schools that have figured this out. They let students go to school for free, help them find jobs, then contract with their new employers to deduct from their salaries later. The schools only get paid if the students get paid. If the student flunks out of school? No money for the school. If the student can't find a job? No money for the school. Job placement becomes the profit center for the school as opposed to an afterthought that typically does a half-ass job of placing students.
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