July 27, 2021

Congress Considers Law to Make Private Student Loans Dischargeable in Bankruptcy

Under current bankruptcy law, most types of student loans are not dischargeable in bankruptcy.  Specifically, Section 523(a)(8) of the Code makes non-dischargeable:

an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or

an obligation to repay funds received as an educational benefit, scholarship, or stipend; or

any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;

Currently student loans would only be dischargeable if the debtor files an expensive “Adversary Proceeding” in bankruptcy court and successfully argues that repayment would present an “undue hardship.”  Statistically a finding of undue hardship has proven to be very, very difficult.

Recently, however, there comes word that Congress is considering a change in this law that would make some private student loans dischargeable.   San Francisco bankruptcy attorneys Jeena Cho and Jeff Curl report on their blog that H.R. 5043 entitled the Private Student Loan Bankruptcy Fairness Act, a bill co-sponsored by Tennessee representative Steve Cohen, is now making its way through Congress. [Read more…]