Student Loans May Become Easier to Discharge in Bankruptcy under New Congessional Proposal in 2013

Senators Propose Bankruptcy Option for Student Loans

Student loan debts have accumulated to over $1 trillion dollars in the United States leaving some lawmakers to believe that a bankruptcy option may need to be in place for students who cannot afford their payments as a result of the lagging economy.

Senate democrats in early 2013 are moving to make the bankruptcy relief easily attainable for qualifying students.

Federal law currently prohibits discharge of student loans unless certain limited circumstances are met. The existing circumstances allowing discharge of federally guaranteed student loan debt requires a showing of complete disability or an “undue hardship on the student and family”. Many Courts use a test known as the Brunner test to determine qualification to discharge student loans. The Brunner test requires a showing that 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). Please note that not all Courts use this Brunner test. Some courts will be more flexible, some less.

The bill to ease dischargeability of student loans may not pass, but will certainly be on the agenda for the next several years as lawmakers count on the support of college-educated voters. The most likely opponents in Congress will likely be the Republicans who continue to voice concern over mounting Federal deficits, and they are likely to view this relaxing of dischargeability as an additional debt increase bill, requiring offsetting revenues or other cuts to the federal budget.

For more information and guidance on bankruptcy in Virginia, please speak with an experienced Falls Church bankruptcy lawyer today at 877-344-8189 or call our office at 703-350-4241.

The Strong Law Firm is happy to answer your questions and explain your options in a completely free and confidential consultation. Take the first step today: reach out to an experienced Northern Virginia bankruptcy attorney with the Strong Law Firm.