Lefkovitz & Lefkovitz
Nashville Office 615-686-2279 Cookeville Office 931-400-2218
Serving all of Middle Tennessee's Bankruptcy Needs

Federal Reserve chair questions student debt bankruptcy policy

Tennessee residents who have ever received student loans for college may recall being warned that student loans must be paid even if the borrower ever declares bankruptcy. Though bankruptcy can dismiss other types of debt, student loans are banned from discharge. The chairman of the Federal Reserve does not agree with this policy, according to statements he made at a Senate banking committee on March 4.

The Federal chair, Jerome Powell, brought up the subject in response to a question about whether student debt can hurt the economy. Powell stated that he does not understand the policy that prevents student debt from discharge in bankruptcy. Admitting that he does not have the power to change this policy, he suggested that Congress should look into it.

Congress first began passing laws that banned student loan debt from bankruptcy discharge in the 1970s. Student loans are only allowed to be discharged if the bankruptcy filer has 'undue hardship" as defined by the courts. Since Congress never defined undue hardship, the courts decide and have generally always set a high standard for meeting the criteria.

Powell said that as student debt continues to grow, it could hold back economic growth. Others have also expressed concern about rising student debt, including former Federal Reserve chair Janet Yellen. The Department of Education is currently seeking opinions and ideas about the way bankruptcy treats student loans.

Even though student debt is usually not allowed to be dismissed in bankruptcy, credit card debt and medical debt are two types of debt that are allowed. While chapter 7 bankruptcy liquidates assets to pay creditors and then discharges any remaining debt, chapter 13 bankruptcy does not involve liquidation. Instead, some debt must be paid on an affordable payment schedule for a few years, after which remaining debt is discharged.

No Comments

Leave a comment
Comment Information

We Look At Your Case From Every Angle To Find The Solution That Is Right For You

Bankruptcy help for everyone, from the most simple to the most complex cases.

Call Us Now To Schedule A Free Initial Consultation

Contact our Nashville office at 615-686-2279 or our Cookeville office at 931-400-2218. You can also reach us via email to set up a time to talk to us about your debts.

Get Legal Help Now

Bold labels are required.

Contact Information

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.


Privacy Policy

Nashville Office
618 Church Street, Suite 410
Nashville, TN 37219

Phone: 615-686-2279
Fax: 615-255-4516
Nashville Law Office Map

Cookeville Office
312 East Broad Street, Suite A
Cookeville, TN 38501

Phone: 931-400-2218
Fax: 931-526-6244
Cookeville Law Office Map

Back To Top