Congress Considers New Bill That Will Allow Student Loan Debt Discharged in Bankruptcy

Published On: August 11, 2021Categories: Bankruptcy

Hudson Valley Area Bankruptcy AttorneyThere are common types of debt that lead people to file for bankruptcy. Two of the most common are medical debt and credit card debt. One type of debt that has overwhelmed millions of Americans but is rarely allowed to be included in a bankruptcy petition is student debt. However, a new bill introduced in Congress may change all that.

Student Loan Debt

It is estimated that the total amount of student debt owed in the United States right now is $1.7 trillion. Many borrowers were granted a reprieve in payments during the COVID-19 pandemic, however, that reprieve is set to be lifted at the end of September. There has been great debate on the topic of student loan cancellation, with some lawmakers calling for Congress to pass a law that would cancel $50,000 of student loan debt, while the White House is calling for a $10,000 student loan cancellation law.

In the meantime, while lawmakers battle it out, many of the 45 million student loan borrowers struggle with paying off their loans because getting those loans discharged as bankruptcy is almost always impossible. Unlike most other debts, which can be included in a simple bankruptcy petition, a person must file an additional request – called an adversary proceeding – to ask the court to include the student loans. In order to be successful, the filer must prove to the court that:

  • Forcing them to pay back the loan would leave them unable to maintain a “minimal standard of living.”

  • The reason or hardship they are filing their bankruptcy on will continue for most, if not all, of the period of the student loan repayment period.

  • The filer did try in good faith to pay back the loan before petitioning for bankruptcy.

Changes in the Law Coming?

Earlier this month, Senate Majority Whip Dick Durbin (IL) and Sen. John Cornyn (TX) introduced the FRESH START Through Bankruptcy Act of 2021 which would allow student loan borrowers to include student loan debt in their bankruptcy after 10 years. Other propositions under the law would include:

  • Providing bankruptcy options for student loan borrowers who have “no realistic option” of paying back that debt.

  • Borrowers with student loans less than 10 years old could still file for bankruptcy under the current undue hardship option.

  • Require colleges that have more than one-third of their students that receive student loans to partially refund the government if a student’s loans are discharged in a bankruptcy petition.

Lawmakers have a positive outlook on the passing of the bill since it currently has bi-partisan support in both the House and Senate.

Contact a Rockland County Bankruptcy Attorney

If you are facing overwhelming debt, filing for Chapter 7 or Chapter 13 bankruptcy may be an option. Call Law Offices of Robert S. Lewis, P.C.  at 845-358-7100 to schedule a free and confidential consultation with a seasoned Hudson Valley Area bankruptcy lawyer.

Sources:

https://www.insidehighered.com/news/2021/08/04/lawmakers-look-allow-loan-discharge-under-bankruptcy

https://www.investopedia.com/how-to-file-student-loan-bankruptcy-4772237

https://www.forbes.com/sites/zackfriedman/2021/02/20/student-loan-debt-statistics-in-2021-a-record-17-trillion/?sh=7147654e1431

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