Chapter 7 - Solutions for a Financial Crisis » Chapter 7 Bankruptcy

Many Americans rack up massive student loan while earning a college education and exploring the future career options.

Many view this expense as an investment that can easily be paid back after graduation when their education nets them a well paid position.

But what happens when college students enter into a world of debt and but struggle to pay those loans back after graduation? can’t afford to pay back those lenders?

While some turn to a Chapter 7 bankruptcy for help, in most cases this type of filing wont’ provide the relief needed.

While Chapter 7 may quickly clear credit card debt and stop a pending foreclosure, removing student loan debt is more difficult. This leads many students to defer their loans.

This may allow them to stop making monthly payments for a period of time, it wont’ stop the interest from growing.

The student loan continues to increase from the original amount borrowed., and this is where many find themselves getting into trouble.

The Wall Street Journal reported there are $730 billion in outstanding federal and private loans.

FinAid.org is a Web site dedicated to tracking financial aid issues across the nation. They said that only 40 percent of student loan debt gets repaid.

Heather Ehmke of California had a hard time paying off her student loans, even after she filed for bankruptcy.

She originally borrowed $28,000, but for 14 years she deferred her student loans.

Since she put off payments the interest on her loan increased to $90,000. That meant her minimum monthly payment also increased – from $230 to $816.

Sallie Mae, a major lender for student loans, did not modify her loan terms to allow her to make her  different payments. Since then Ehmke requested a petition for hardships, which was dismissed.

Sallie Mae said that they do support reforms allowing student loans to be discharged in bankruptcy, but only for those who made a “good faith” effort to repay them. They believe someone who made regular payments, but can no longer pay the bills should be able to, in certain circumstances, include their student loans in a bankruptcy filing.

But the Chapter 7 bankruptcy laws do not currently work this way. Even with a Chapter 13, student loans are rarely included in a bankruptcy case, and any changes to the law are still a long way off.

As college students continue to graduate into a down job market, this problem may continue to grow.