Millions of Americans have filed Chapter 7 bankruptcy to eliminate crippling debt and get a fresh financial start, but nowadays it isn’t unusual for people to come out of the process still owing much of their debt in the form of student loans, according to a report issued Tuesday by LendEDU.
Based on anonymized data from 1,083 bankruptcy cases across the nation supplied by Upsolve, a nonprofit that helps low-income people file for Chapter 7 bankruptcy free of charge, 32 percent of filers had student loan debt.
Among those one in three consumers, student loans on average comprised 49 percent of their total debt, which left them with about half of their debt because student loan debt is almost impossible to discharge in bankruptcy.
“The point of filing for Chapter 7 bankruptcy is to have all of one’s outstanding debt discharged so that the person can restart their financial life, debt free,” LendEDU research analyst Michael Brown wrote in the report.
“However, one-third of these bankruptcy filers can have almost all of their debt discharged but have nearly 50 percent of the total debt remaining to be repaid. That does not sound like a financial restart, rather a continuance of the debt-ridden life that creates and exacerbates so many problems.”
The study also found in the nationwide sample that 21 percent of total debt came from student loans, a category of debt that has ballooned to more than $1.5 trillion nationally and become the second-largest form of consumer debt.
Chapter 7 bankruptcy, which liquidates a person’s assets and uses the proceeds to pay off as much of their outstanding debt as possible, requires specialized attention and is not done by Upsolve and many other entities that provide assistance to people filing for bankruptcy.