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Charbonneau on Student Loan Debt & the 2020 Consumer Bankruptcy Reform Act

Coral Gables – December 14, 2020 – The Consumer Bankruptcy Reform Act of 2020 released last week by Senator Elizabeth Warren and other members of congress proposes a simple and easy discharge of student loans. The proposed act states that student loans would be treated no differently from other forms of consumer debt, and could be discharged without an adversary proceeding, and without having to prove an “undue hardship.”

Currently, in order to discharge student debt, borrowers must file a lawsuit within their bankruptcy case against their student loan lender(s) (an adversary proceeding) and prove at a trial that they have an “undue hardship.” However, “undue hardship” is not defined in the bankruptcy code, therefore bankruptcy judges have established several tests to determine discharge eligibility. The adversary proceeding can be an extensive and invasive process for borrowers, therefore many people are discouraged from trying or unable to prove “undue hardship.”

The proposed bill would eliminate the section of the code that exempts student loan debt from discharge.

“As we grapple with the economic consequences of the COVID-19 pandemic, American families will continue facing serious financial pressures,”said Senator Durbin in a press release.”Whether it is finding ways to help families stay in their homes during bankruptcy, to restoring dischargeability of student loans…we must end years of delay and finally make our bankruptcy system fairer by passing this legislation.”

The future of this bill might be determined in January, depending on the outcome of runoff elections in Georgia – which will determine which party controls the Senate.

For more information: https://www.warren.senate.gov/newsroom/press-releases/warren-and-nadler-introduce-the-consumer-bankruptcy-reform-act-of-2020

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