Congress proposes new bankruptcy protection for student loan debt

Posted by Lauren S. CohenJul 25, 20180 Comments

Individuals in New York struggling with student loan debt may be interested in the new bankruptcy rules that are being proposed for students who have debt. Student loan debt in the United States is estimated to be around $1.4 trillion. Billions of dollars of student debt are at least 90 days delinquent according to the Federal Reserve Bank in New York. It is clear to see the burden that student loan debt is having on many people.

When a person files for bankruptcy and has their loans discharged, they are no longer required by law to repay the loan. In recent years, though, it has become very rare for a court to discharge student loans when a person files for bankruptcy.

Congressman Peter DeFazio from Oregon proposed legislation that may provide some relief for those saddled with debt. This legislation would significantly change bankruptcy rules by broadening the definition of “undue hardship” to include student debt.

As it currently sits, the courts determine if a debt is an undue hardship on a case-by-case basis. Congress has not defined what an undue hardship is. However, the current administration, along with Congress, appears to be leaning toward including student loans in this classification.

When determining what an undue hardship is, many courts use the Bruner test. This test looks at factors such as whether a person will be able to keep a minimal standard of living if they need to repay the loans, whether their financial difficulties are temporary and whether they tried to keep up with their student loan payments prior to filing for bankruptcy.

Filing for bankruptcy could play a major role in preventing unnecessary financial difficulty for students battling with debt. A bankruptcy attorney may be able to help clients find real debt relief and achieve a fresh start for their financial future.