White House Intervenes to Protect Student Loans in Boston Bankruptcy Case

Should student loans remain barred from bankruptcy protection? That's the question that many officials, including those in the Obama administration, have been weighing since crippling student loans have become so prevalent for borrowers in the recent years. Despite promising talk earlier this year considering bankruptcy reform, the White House stepped in this month and clarified that federal student loans should stand in the case of a bankruptcy filing in Boston.

As United Press International reports, U.S. Department of Education attorneys intervened in the case of Robert Murphy of Massachusetts—a 65-year-old seeking federal student loan forgiveness following long-term unemployment. According to Murphy, even if he were to find relatively modest work now, at retirement age, he would still not be able to pay off the federal loans he took out to pay for his children's education.

The U.S. Department of Education, however, argued that the request should be denied in order to maintain the fiscal stability of the loan program. The federal lawyers argued that "Federal loans are not underwritten, have generous terms and protections, and the payments can be limited based on income. Private student loans, by contrast, are underwritten and most do not have a built in income- driven repayment plan."

Uncertain Status for Student Loans

Last March, President Obama signed the Student Aid Bill of Rights to Help Ensure Affordable Loan Repayment. Speaking to students about that memorandum, he also revealed that his administration was looking into changing bankruptcy laws to help relieve students of crippling debt. Previous to that, Vice President Joe Biden also enacted legislation that bars both federal and private student loans from bankruptcy protection when he was a Delaware senator in 2005. The U.S. Department of Education's intervention of Mr. Murphy's case this month seems to mark an about-face for the administration—or at least indicates that there is still some uncertainty over whether or not lifting bankruptcy protection for federal student loans is financially feasible.

However, all hope is not yet lost for Mr. Murphy, who is now asking the court to define what "undue hardship" is in relation to his federal student loans. As UPC notes, a victory for Murphy in this case could set a very new precedent for the way bankruptcy courts view federal student loans.

If you are overwhelmed by financial hardship, then it may be time to start considering bankruptcy. At The Buchalter Law Group, our compassionate Brevard County bankruptcy attorneys have helped countless clients weather this trying time with effective financial solutions. With more than 35 years of bankruptcy law experience, we know how to protect our clients rights during this process and ensure that they are afforded every advantage provided to them under the law.

It is possible to begin again. Contact us today to request a free case evaluation.

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