In 1998, Congress overhauled the bankruptcy system and made student loans non-dischargeable in bankruptcy. That meant you could not escape from student loans by filing bankruptcy.
Eventually, the Court’s interpreted the law to mean you might discharge them, but you would have to show: 1) that some horrible unforeseen calamity had befallen you after you received the loans and 2) there was zero prospect that you would ever again be in a position to have sufficient income to handle the loans.
Very few individuals – even those with very tragic circumstances – were able to get out from the student loan morass.
The COVID-19 pandemic, for all of its tragic implications, has motivated Congress to revisit this.
This week, senators Richard Durbin (D-IL) and John Cornyn (R-IL) introduced "Fresh Start Through Bankruptcy Act,” as bipartisan legislation. If passed, the bill would restore the ability to discharge student loans in bankruptcy. The Senate Judiciary held a hearing on this and struggling student borrowers argued for the need to allow them the ability to discharge their loans in bankruptcy as a last resort.
This is the first bipartisan effort on this issue in the U.S. Senate since 1998, when this discharge right was eliminated. If it passes, it will provide bankruptcy relief for struggling borrowers across the country.
The bipartisan bill contains a 10-year waiting period and clawback provisions to permit the Department of Education to recover funds from institutions with higher repayment default rates. Prospects for passage are promising. Stay tuned here for further developments, or call for a consultation to discuss your student loan debt problems.