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Proposed legislation could make discharging student loans in bankruptcy easier

On Behalf of | Dec 15, 2020 | Bankruptcy

Student loans are one of the most common forms of debt. When added together with all other obligations, the burden can become too much to cope with. Many people decide to file for personal bankruptcy. Yet persuading a court to discharge student loan debt can be especially tough. If the recently proposed Consumer Bankruptcy Reform Act of 2020 passes into law, however, it may become more manageable.

How big a problem is student loan debt?

Around 45 million people in the U.S. owe money on student loans. The total owed stands close to $1.7 trillion.

Currently, for a court to discharge your student loan as part of a bankruptcy filing, you must show that these loans are causing you “undue hardship.” As there is no set definition of what undue hardship means, much comes down to how the individual judge sees things. While many believe judges never write off student loans, this is not true. However, it is more complicated than having things such as credit card debts cleared.

What if a judge refuses to include my student loans when I declare bankruptcy?

Clearing other debts through bankruptcy may make it possible to continue paying your student loans if a judge refuses to include them. As an individual, you can currently choose from two options of bankruptcy. Chapter 7 will clear most debts at the cost of losing many assets you have. Chapter 13 does not wipe out debts but allows you to restructure payments. In return, you are more likely to keep assets such as your home or car.

How will the Consumer Bankruptcy Reform Act of 2020 make a difference?

If the new law passes, it will do away with Chapter 7 and 13 and amalgamate them into one option called Chapter 10. The law would treat student loans the same as other consumer debts, removing the need to prove undue hardship. It will make it simpler to file and allow more people to escape their student loans’ burden for good. 

When your debts are overwhelming, there are solutions. An attorney can tell you more.