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A Medical Bankruptcy May Soon Discharge Student Loans

Categories: Chapter 13, Chapter 7, Exemptions, Medical Debt & Bankruptcy, Student Loans & Bankruptcy

Cited as the Medical Bankruptcy Fairness Act of 2014, S.2471 is a Bill recently introduced in the Senate, June 12, 2014. The proposed Bill would Amend the Bankruptcy Code to include definitions for a “medically distressed debtor” and allow a discharge of their student loan debt without the current requirement of filing an adversary proceeding to prove Undue Hardship. The “new” legislation would help those who have incurred medical debts during the three (3) years before filing bankruptcy that is greater than 10% of their adjusted gross income or $10,000; and received no domestic or family support; or which caused a reduction in income or unemployment.

The only other way to discharge federal student loans is through an administrative discharge, which requires a total and permanent disability.  The bankruptcy requirement would be a lesser burden on debtors with medical issues, but who are not totally and permanently disabled. Also, the Bankruptcy Code would include both federal and private student loans, unlike the federal administrative discharge.  Once again, bankruptcy may provide a more complete solution to debt problems.

Given the volume of potential cases I am presently consulting on where the potential debtors possess very strong cases supporting Undue Hardship.  However, these potential clients lack the financial resources to hire me to represent them in litigation against their lenders to prove their cases.  The passing of this Bill would lift an enormous burden off the backs of these clients who have suffered personally, financially; remain a burden on family, friends and the community; and who deserve a Fresh Start.

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