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California readers have questions about bankruptcy exemption

California readers may be surprised to learn that the number of people who default on their student loans is rising. In fact, as many as 6.7 million people are more than 90 days late in their student loan payments. This is a full 17 percent of all people saddled with these loans. Many of these people may consider filing for a personal bankruptcy, particularly in view of the fact that there appears to be a move underfoot regarding the potential for discharge of student loans in bankruptcy. If they do, they will likely have questions regarding possible bankruptcy exemption and discharge options.

In California, as elsewhere, bankruptcy exemptions and debt discharge are some of the benefits that are offered when a person files for a bankruptcy. These can include the discharge of unsecured debts such as credit cards, medical bills and personal loans. However, there are debts that cannot commonly be discharged. These typically include student loans, child and spousal support and taxes.

The good news for some people in our state who owe a significant amount in student loans is that there are new federal laws being proposed in Congress. These changes to the Bankruptcy Code would, if passed, allow some student loan debts to be discharged in a personal bankruptcy. This has not been possible since the 2005 changes were made to the federal Bankruptcy Code.

The decision to file for a personal bankruptcy can be a great relief for California residents overcome by unmanageable debt. When the amount of debts that a person is carrying becomes more than they can repay, bankruptcy protection is typically a responsible approach to get back on the track to financial stability. Understandably, questions typically arise regarding what can be discharged and what bankruptcy exemption options are available. An impartial assessment of the available alternatives may help lay the foundation for a fresh start free from the worries of nagging debt.

Source: National Legal and Policy Center, "Plan to Discharge College Student Loans through Bankruptcy Avoids Real Issues," Carl Horowitz, April 10, 2013

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