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I think we all can agree that 2020 has been the most interesting year in recent memory. While many of us have not come to terms with the “new normal” as it is being called, we have all accepted that student loan debt has become a deeply ingrained part of young American existence.
Most of the statistics are staggering including the fact that Americans owe 1.6 Trillion in outstanding student loan debt. This amount is more than credit card debt and auto loans and is second only to outstanding mortgage debt. There are approximately 44 million U.S. borrowers with student loan debt with an average of $33,000 outstanding per borrower.
For more information on current student loan statistics and date, please read this Forbes article.
Student loan debt is expressly exempted from discharge by the Bankruptcy Code. As a bankruptcy attorney, it has been disheartening and frustrating to consistently tell my clients that nothing can be done with student loan debt. Since the birth of the United States, individuals and families have been able to use the bankruptcy process to get out of debt and more importantly, get a “fresh start.”
This comes directly from the Supreme Court of the United States:
One of the primary purposes of the Bankruptcy Act is to, "relieve the honest debtor from the weight of oppressive indebtedness, and permit him to start afresh free from the obligations and responsibilities consequent upon business misfortunes." Williams v. U.S. Fidelity & Guaranty Co., 236 U. S. 549
THE STUDENT BORROWER BANKRUPTCY RELIEF ACT OF 2019
Perhaps there is a light at the end of the tunnel for those yoked with oppressive student loan debt?
In May, 2019, a bill was introduced in the U.S. House of Representatives that would change the bankruptcy landscape as we know it. The bill, H.R. 2648, would simply strike out the language in the United States Bankruptcy Code that makes it near impossible for student loan borrowers to discharge their debt in bankruptcy.
Right now, that language reads that student loans are not dischargeable in bankruptcy unless the debtor can prove “undue hardship.” Courts have developed a test for determining undue hardship and believe me, it is quite difficult to prove. Besides having to prove undue hardship, the debtor must sue the student loan lender in the bankruptcy court in order to make the argument of undue hardship and hope for discharge. This is time consuming and costly, commodities that most bankruptcy debtors do not have.
The Student Borrower Bankruptcy Relief Act of 2019 would simply remove the language that makes student loan debt non-dischargeable.
MOMENTUM INTO THE FUTURE
Last week, the bill entered the discussion and markup phase in the House of Representatives. House Judiciary Commision Chairman Jerrold Nadler said the following:
"The 'Student Borrower Bankruptcy Relief Act of 2019' would fix a great injustice that burdens millions of Americans and would strengthen our economy in the process. I thank all of my colleagues who have worked with me to fight for this legislation, including Congressman Neguse, who is a lead co-sponsor of the bill, and Congressman Cohen, who has been a champion of similar legislation to protect student debtors in bankruptcy. I urge all Members to support H.R. 2648."
While the bill is unlikely to pass the Senate, there is hope on the horizon and it seems that the ball is rolling in the right direction.
No matter where you stand on this issue, there is no denying that student loan debt is growing exponentially year to year and is a financial crisis that must be dealt with. Hopefully, through bankruptcy reform we can stop the flooding and begin to heal the financially damaged individuals and families struggling under this burden.