Student Loans

ABI Releases Key Recommendations on Discharging Student Loan Debt in Bankruptcy

Student loan debt can be particularly challenging to discharge in bankruptcy.  The current undue hardship standard can be difficult for most borrowers to meet.  However, that doesn’t mean student loan debt is any less burdensome than other types of debt that are discharged in bankruptcy.  Borrowers can spend years struggling to make payments on student loans, only to see thousands of dollars in interest and fees added to the total if they default on a payment or have to go into forbearance.  Most borrowers do not see bankruptcy as being a viable option to discharge their student loan debt.

However, this may soon change thanks to the recommendations made by the American Bankruptcy Institute (ABI). How student loan debt is handled in bankruptcy is just one of issues being reviewed by ABI and discussed in the final report made by the Commission on Consumer Bankruptcy.

The ABI Commission on Consumer Bankruptcy was created in 2016 with the mission of researching and recommending improvements to the country’s current bankruptcy system. The changes include amendments to the Bankruptcy Code, as well as administrative rules, recommendations on interpreting the current bankruptcy law, and modifications to the Federal Rules of Bankruptcy Procedure.

When the Commission began its work, they asked for input on what bankruptcy issues should be reviewed. Student loan debt was one of the issues that received the most recommendations. With consumers holding an estimated $1.5 trillion in student debt, the fact that this issue is an area of focus by the ABI Commission on Consumer Bankruptcy is not surprising. It is also estimated that over 40 million American consumers currently carry some amount of student loan debt.

Bankruptcy is intended to serve as a fresh start for consumers struggling financially, but the tests currently used by bankruptcy courts to determine whether the filer’s student loan debt should be partially or completely discharged makes this fresh start an impossibility for many.

The Commission recommended that the current bankruptcy law be re-written so that student loan borrowers who are no longer able to continue paying on their debts and default on their student loans be allowed to receive this fresh start.

Currently, the law requires that the borrower prove an undue hardship before being able to discharge the debt. However, what qualifies as a hardship is not defined legally. Courts have used various tests to determine what qualifies as a hardship, but no uniform test exists. The Commission recommended that a student loan debt be allowed to be discharged unless certain factors exist including: 1) the debt was made, insured or guaranteed by a government agency; 2) the debt was incurred for the borrower’s own education, and 3) the student loan first became payable less than seven years before the bankruptcy petition was filed.

The recommendations made by the Commission would have the effect of eliminating the protection private student lenders have previously enjoyed. Additionally, it would make it possible for individuals who took loans out on behalf of someone else to get out of the debt, including parents who co-signed loans for their children. These recommendations are being submitted to Congress, and it is hoped that lawmakers will take this report and use it to propel change to the current bankruptcy system.

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For borrowers who are struggling with student loan debt, relief options are available.  Many student loan borrowers are unaware that they have rights and repayment options available to them, such as postponement of loan payments, reduction of payments or even a complete discharge of the debt. There are ways to file for bankruptcy with student loan debt.  It is important you contact an experienced Miami bankruptcy attorney who can advise you of all your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at

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