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Bill could help student loan debtors

People in Oregon who are struggling with student debt might have the opportunity to discharge that debt in bankruptcy if a bill introduced in Congress is successful. The Student Borrower Bankruptcy Relief Act of 2019 has the support of one Independent, one Republican and 14 Democrats.

Student loan debt has become a serious problem. It is anticipated that by 2022, the total unpaid balance will be $2 billion. Over 25 percent of people with student loan debt are delinquent or in default. However, it has not always been so difficult to discharge student loans in bankruptcy. In the 1970s, a law was passed that required students to repay for five years before filing for bankruptcy. Two more years were added to the waiting period in 1990. In the late 1990s, the law was changed again. The new rule was that student loans could only be discharged in bankruptcy if repaying them caused "undue hardship".

One problem with "undue hardship" is that there is no clear definition of it, and interpretations of it can vary widely. The bill has support from consumer advocates although opponents have voiced concern that it would result in a large surge in bankruptcy filings.

Even if a person cannot discharge student loans in bankruptcy, other debts, such as medical and credit card, are usually dischargeable. This can free up money to pay down student loans. Additional debts that usually cannot be discharged in bankruptcy include child support, alimony, and taxes. A Chapter 7 bankruptcy still allows a person to keep some assets, and it is possible to start rebuilding credit after declaring bankruptcy. There are eligibility requirements that an attorney can outline.

Source: CNBC, "It could become easier for people with student debt to file for bankruptcy", Annie Nova, May 11, 2019

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The Law Office of Kim Covington is a debt relief agency, and I have helped families, individuals and small businesses, file for bankruptcy relief under the U.S. Bankruptcy Code, for over 19 years.

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