Student loans and bankruptcy: Time for a Change?

The current bankruptcy laws do not allow for discharge of student loans, without a showing that the student loans are an "undue hardship" on the debtor and her dependents. This standard is extremely difficult to meet and for all practical purposes means that student loans will not be discharged in bankruptcy.

This was not always the case, in the late 1970, when the bankruptcy code was amended; student loans were dischargeable in chapter 7 cases if it had been more 5 years since you graduated from school. For those individuals that could afford to repay some of their debt in chapter 13 student loans were dischargeable with no waiting period.

Later congress amended these laws to extend the time from a 5 year wait to a 7 year wait and eliminated the chapter 13 no waiting period. Finally congress again amended the bankruptcy laws to exempt from discharge student loans entirely, which is the rule today.

There is a growing concern that students are not able to get a fresh start in bankruptcy without a discharge of their loans. If an effort is made by students to repay their loans for a number of years and those loans continue to be a burden on the student and his family then those loans should not be exempt from discharge.

Waiting periods for discharge of debts is not unknown to the bankruptcy laws. Currently, income tax is typically discharged in bankruptcy if you actual filed your return on time and it has been more than 3 years since that return was due.

I therefore stand with the National Association of Consumer Bankruptcy Attorneys (NACBA) and support change to the bankruptcy laws to allow for discharge of student loans in bankruptcy.

I encourage you to read NACBA's recent report of student loans by clicking below.

Student Loan Debt Bomb.