New Legislation for Bankruptcy and Student Loans


Most of us know that student loans are difficult, if not often impossible, to discharge in personal bankruptcy. However, a number of legislators believe that substantial student loan payments should be easier to discharge if you file for Chapter 7 bankruptcy. In particular, legislators have targeted those student loans issued by private lenders, contending that they should receive the same treatment “as other types of private unsecured debt in bankruptcy proceedings,” according to a recent article in Fortune Magazine.
Fairness for Struggling Students Act of 2015
Earlier this month, thirteen Senators introduced a new bill, the “Fairness for Struggling Students Act of 2015.” The proposed legislation acknowledges the heavy burdens that private student loans put upon recent graduates, and it emphasizes that private student loan debt should be easier to discharge by filing for consumer bankruptcy.
Right now, it’s extremely difficult—“nearly impossible,” according to the article—to discharge even private student loans in a bankruptcy proceeding. About ten years ago, some changes to the federal bankruptcy code essentially “shielded private loans from being discharged in bankruptcy.” Federal student loans have enjoyed that type of protection since the late 1970s. The recently proposed legislation wouldn’t make much of a difference for federal student loan borrowers. However, it would seek to “reverse those 2005 changes so borrowers can once again get rid of private loans in bankruptcy.”
In other words, the bill would only cover a “small chunk of student loans,” or those issued by private banks. All in all, private student loan debt only accounts for about 10 percent of all student loan debt across the country.
According to Senator Dick Durbin, an Illinois Democrat who is co-sponsoring the bill, emphasized that “too many Americans are carrying around mortgage-sized student loan debt that forces them to put off major life decisions like buying a home or starting a family.” Given those circumstances, Durbin and other Senators feel that they “can no longer sit by while this student debt bomb keeps ticking.”
Rising Student Loan Debt
Commentators are skeptical about the likelihood that this bill will pass. However, it’s important to remember that student loan debt accounts for trillions of dollars of debt across the country. To be sure, the Consumer Financial Protection Bureau (CFPB) recently estimated that the total student loan debt is currently at about $1.2 trillion. Based on numbers alone, that’s “more than the nationwide balances for credit cards and auto loans.” Private loans account for about $165 billion of that debt.
No matter what the outcome of the bill, student loan debt is “ballooning” in our country. And as with other debt, many borrowers are having difficulty paying. Indeed, by 2012, about $8 billion worth of private debt was in default, according to the CFPB.

Are you struggling with consumer debt? Do you have questions about how you might be able to discharge student loans by filing for bankruptcy? Personal bankruptcy is very complicated, and it’s important to discuss your situation with an experienced Oak Park consumer protection attorney before taking any definitive steps to file. Contact the Emerson Law Firm today.

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