Student loan debt has been notoriously difficult to discharge in bankruptcy. They typically have to show that repaying it would cause them “undue hardship.” However, a report just released by the American Bankruptcy Institute’s (ABI) Commission on Consumer Bankruptcy includes recommendations that would change that.
The report addresses a number of subjects and recommendations for changes to the bankruptcy code, which hasn’t seen any major updates since 2005. In the ensuing 14 years, U.S. student loan debt has grown to a whopping $1.5 trillion.
Among the recommendations in the report involving student loan debt:
- Borrowers can discharge the debt seven years after it becomes payable.
- Borrowers can discharge debt owed to private lenders.
- The definition of “undue hardship” should be revisited.
- The U.S. Department of Education should ease efforts to fight borrowers’ attempts to discharge their student loan debt when there’s little chance of repayment — particularly if they fall below the poverty level and/or qualify for government disability benefits.
As one retired bankruptcy judge who co-chaired the report says, “Debt hanging over the debtor forever has a cost…in terms of lack of purchase of houses, cars, having children and we just recognize that at a certain point for those people who want to avail themselves of bankruptcy, they ought to be able to get the fresh start and move on with their lives.”
It’s ultimately up to Congress to determine whether and how to make changes to the bankruptcy code. Whether they feel an incentive to do that may depend on whether their constituents consider it an issue that’s important enough to speak up about and to consider when they vote.
In the meantime, if you want to find out whether any of your student loan debt can be discharged in bankruptcy, it would be wise to consult with an experienced bankruptcy attorney. Even if it can’t be, by discharging other types of debt, you may be in a much better position to keep up with your student loan repayments.