February 15, 2013

New bill assigned to congressional committee re whether the bankruptcy code should be amended to discharge private student loans

A bill to amend the bankruptcy code to allow private student loans to be discharged was recently assigned to a congressional committee to determine whether it should be sent to the house and senate for vote.  You can sign up at govtrack to track the bill's progress here:   http://www.govtrack.us/congress/bills/113/hr532#overview

Currently, student loans are only dischargeable in bankruptcy if they “will impose an undue hardship on you and your dependents.”

In the Ninth Circuit, where I practice, currently courts use the "Brunner Test" to evaluate whether a particular borrower has shown an undue hardship. A borrower must show:  1) the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for the debtor and the debtor’s dependents if forced to repay the student loans; 2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and 3) the debtor has made good faith efforts to repay the loans. (Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987).  If you can't meet the undue hardship standard, you're out of luck for discharging those student loans.

I am hopeful that the new bill will eventually be passed into law. I know it would certainly help a lot of my clients get a true fresh start. I will be tracking this bill eagerly.