The U.S. House of Representatives has been debating a bill that would change the bankruptcy laws for student loan debtors. The bill, known as the Student Borrower Bankruptcy Relief Act or H.R. 2648, would make it easier to discharge student loans in bankruptcy by simply removing the bankruptcy provision that currently makes it difficult. While the bill has significant support in the House, analysts say it’s unlikely to pass the Senate. The issue has gained prominence in Wisconsin and across the country in recent years.
Student debts are currently treated differently in bankruptcy than other debts. Things like credit card debts and medical debts are generally dismissed in bankruptcy as a matter of course, but those who wish to get rid of student debts are required to meet a higher standard. To get rid of student debts, the petitioner must generally establish that repayment of the debt would constitute an undue hardship.
It can be quite a difficult task to establish undue hardship as the petitioner may be required to initiate a case within the bankruptcy, called an adversary proceeding, and present evidence demonstrating the undue hardship. On the other side of such an adversary proceeding will be the student loan lender, which is often an entity that has more money and wherewithal than the petitioner. Moreover, the bankruptcy code does not set forth what circumstances will qualify as undue hardship. Therefore, bankruptcy judges have created standards that may vary widely depending on the jurisdiction.
Individuals in Wisconsin who are struggling to pay off debts might want to schedule a consultation with a lawyer. A bankruptcy attorney could help by examining the client’s financial circumstances and suggesting options to lower or eliminate debts. It is possible in many cases to discharge debts and still keep ownership of important assets.