Bipartisan legislation in the Senate (S. 1414) and House (H.R. 2648) may restore the ability for student loan debt to be dischargeable in Bankruptcy, known as The Student Borrower Bankruptcy Protection Act of 2019.
Discharging student loan debt under current bankruptcy law
While not impossible in some cases, it is currently very difficult to have student loan debt discharged in bankruptcy. To accomplish this requires determination by the bankruptcy court that undue hardship would be caused by repayment of your student loans. This determination is made in an adversary proceeding in bankruptcy court, which is a separate action.
Factors in determining undue hardship in bankruptcy (If forced to repay loan):
- Inability to maintain minimal standard of living
- Evidence that this hardship will continue
- Good faith efforts to repay were made
The National Association of Consumer Bankruptcy Attorneys (NACBA) called for restoration of student loan debt discharge in bankruptcy during testimony before the House Judiciary Committee Subcommittee on Antitrust, Commercial and Administrative Law on June 25, 2019 during the Oversight of Bankruptcy Law and Legislative Proposals Hearing. See full press release below:
NACBA Calls to Restore the Student Loan Bankruptcy Discharge
Krista D’Amelio | Latest News | June 25, 2019
For Immediate Release:
Today, the National Association of Consumer Bankruptcy Attorneys (NACBA) was given the opportunity to testify before the House Judiciary Committee Subcommittee on Antitrust, Commercial and Administrative Law during the hearing “Oversight of Bankruptcy Law and Legislative Proposals”. NACBA’s Vice President, Ed Boltz, as well as the other witnesses on the panel, made a strong call for restoration of the student loan bankruptcy discharge. The call for bankruptcy relief for student loan debtors was unanimously supported by the witness panel that included Ms. Hollister K. Petraeus (Former Assistant Director, Consumer Financial Protection Bureau’s Office of Servicemember Affairs), Mr. Robert Keach (on behalf of The American Bankruptcy Institute), Mr. John Rao (on behalf of The National Consumer Law Center), Ms. Dalié Jiménez (Professor, University of California Irvine School of Law) and The Honorable Thomas Small (Professor, University of California Irvine School of Law).
NACBA strongly supports current bipartisan legislation in the Senate (S. 1414) and House (H.R. 2648), introduced respectively by Senator Dick Durbin and Congress members Jerrold Nadler and John Katko, to restore the bankruptcy discharge for student loan debt. “Growing evidence indicates that student loan debts not only severely restrict borrowers’ futures, but also are choking economic productivity”, testified Boltz. “These minimal efforts show the inadequacy of piecemeal, non-comprehensive changes that stop short of restoring the general dischargeability of student loans in bankruptcy.”
The hearing comes one day after Senator Bernie Sanders introduced legislation that would cancel all of the $1.6 trillion in outstanding student loan debt in this country. This follows recent proposals from other national figures, including Senator Elizabeth Warren, all of which are bringing into focus the fact that the student debt bomb is real and has already overwhelmed many Americans who do not have the ability to pay this debt back.
NACBA’s Legislative Co-Chair Ike Shulman stated, “Because eligibility for bankruptcy is limited to people who must demonstrate their financial difficulty and their need for bankruptcy relief, these bills will not affect student borrowers who are fully able to pay back their student loans. Instead, this legislation will help those who most need relief and are unable to pay back this debt.”
To further strengthen the call to restore student loan bankruptcy discharge, NACBA is proud to introduce a new project: studentdebtbomb.com, a social media campaign to promote the Student Borrower Bankruptcy Protection Act of 2019 (S. 1414 and H.R. 2648), which seeks to make student loans fully dischargeable. The goal of the social media campaign is to encourage people to contact their Senators and Congressional Representatives, urging them to cosponsor the bills.
For further information, please contact Krista D’Amelio, NACBA Director of Government Affairs & Communications, at [email protected].
Watch the testimony at the House Judiciary Hearing
Among many compelling arguments, Senator Richard Durbin makes testimony demonstrating the difficulty in qualifying to discharge student debt in bankruptcy. During the 39th minute of the video, he referenced an article in the Wall Street Journal and stated that in 2017 “exactly 4 in the entire United States of America, could prove undue hardship.”
What could bankruptcy student loan discharge mean for the United States Economy
While some Bernie Sanders is calling for complete student loan forgiveness of 1.6 trillion, the impact of the Student Borrower Bankruptcy Protection Act of 2019 would only impact those who are filing bankruptcy. This means that it only impacts those who really need the financial help. Additionally, the economic stimulation provided by student loan forgiveness through bankruptcy could exceed the amount of forgiven debt.
Wall Street Journal, Katy Stech Ferek, (2018, June 14). Judges Wouldn’t Consider Forgiving Crippling Student Loans—Until Now. Retrieved from https://www.wsj.com/articles/judges-wouldnt-consider-forgiving-crippling-student-loans-until-now-1528974001
Federal Student Aid, An Office of the US Department of Education, In some cases, you can have your federal student loan discharged after declaring bankruptcy. https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/bankruptcy
NACBA – Krista D’Amelio, (2019), NACBA Calls to Restore the Student Loan Bankruptcy Discharge [Press Release]
U.S. House Committee on The Judiciary, (2019, June 25) https://judiciary.house.gov/legislation/hearings/oversight-bankruptcy-law-and-legislative-proposals