Many are aware that filing bankruptcy provides a wide range of protections, but student loans are usually not part of a short list of debts that cannot be discharged. This is bad news for the 44 million student loan borrowers here in the U.S., some of whom are floundering under the weight of these debts.
Help on the way?
There is now a bill in Congress called the Student Borrower Bankruptcy Relief Act of 2019. This bill was introduced by U.S. Senators Dick Durbin (D-IL) and Elizabeth Warren (D-MA) as well as U.S. Representatives Jerrold Nadler (D-NY) and John Katko (R-NY). This bill would eliminate the rule that makes federal and private student loans from being dischargeable.
“Filing for bankruptcy should be a last resort, but for those student borrowers who have no realistic path to pay back their crushing student loan debt, it should be available as an option to help them get back on their feet,” Sen. Durbin said in a statement. “Our nation faces a student debt crisis, and it’s time to restore the meaningful availability of bankruptcy relief to student loan borrowers.”
Why were student loans on the short list?
While mortgages, credit cards and car loans are all candidates for discharge, student loans are usually are not. Some were concerned that students would take out a large number of loans and then file bankruptcy after getting that degree. Before 1976, bankruptcy could discharge student loans if they had been repayment for five years and then extended to seven years. Then in 1998, lawmakers removed dischargeability unless the debtor could show undue hardship in paying back the debt. The Bankruptcy Abuse Prevention and Consumer Protection Act, which is currently in effect, further strengthened that rule in 2005.
The current exception to the rule
Many do not realize that those with student loans can have their debt discharged using the Brunner Test. This can occur if the following is true:
- The borrower would not be able to maintain a minimum standard of living if they paid their student loans.
- These circumstances would continue throughout the repayment.
- The debtor displayed good faith in trying to pay the debt off.
Bankruptcy courts will also consider other factors like age, health and other extenuating circumstances.
Check back if you have questions
The high profile of presidential candidate Elizabeth Warren will likely mean she will be talking about this on the campaign trail as well as on the floor of the Senate. Those with questions about the Brunner Test, this bill or other questions should contact a knowledgeable bankruptcy attorney. They can provide personalized guidance to meet the difficult challenges of bankruptcy.