Lefkovitz & Lefkovitz

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Nashville Office 615-256-8300
Cookeville Office 931-400-2218

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Bill introduced dealing with student debt and bankruptcy

On Behalf of | May 15, 2019 | Chapter 13 |

Some people in Tennessee who are struggling with student loan debt may find it easier to discharge those debts in bankruptcy if a federal bill that has been introduced is successful. Discharging student loans has gradually become more difficult since the 1970s, and currently, in order to be eligible for discharge, student loan payments have to be causing “undue hardship”.

The problem with the undue hardship standard was that it was never defined and was subject to very different interpretations across jurisdictions and even individual judges. Attorneys struggled to advise their clients regarding student loan debt since it was so difficult to predict how it would be regarded as part of a bankruptcy filing.

The Student Borrower Bankruptcy Relief Act of 2019 is supported by a number of consumer advocacy groups along with 14 Democrats, one Independent and one Republican. It would bring relief to some of the borrowers whose collective student loan debt is expected to rise to $2 trillion in three years. In 2018, the chairman of the Federal Reserve said he could not explain why student loan debts were treated differently from other types of obligations. While opponents claim the change will raise interest rates and encourage bankruptcy filings, supporters point out that historically, student loans have not comprised a large part of bankruptcy filings.

Many other types of unsecured obligations can be discharged in bankruptcy, including medical and credit card debt. With a Chapter 13 bankruptcy, a person may be able to keep certain assets, including a home. A bankruptcy filing puts an immediate stop to any creditor actions, including foreclosure. Chapter 13 requires a repayment plan lasting either three or five years.

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