staircase of debt

Student loans must be simpler to discharge in chapter, ABA argues

ABA Annual Meeting

Student loans must be simpler to discharge in chapter, ABA argues

staircase of debt

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Student debt is an actual and current disaster,” Christopher Jennison informed the ABA House of Delegates in August on the ABA Hybrid Annual Meeting.

Jennison, then a Maryland State Bar Association delegate and YLD meeting speaker, had risen to introduce Resolution 512. It urges Congress to amend the U.S. Bankruptcy Code to permit debtors to discharge student loans with out proving that compensation of the debt imposes an “undue hardship” on them or their dependents.

Jennison identified that the division beforehand introduced a decision to the midyear assembly in February that urges Congress and the chief department to develop and implement packages to assist legislation students and graduates who’re experiencing monetary hardship due to their loan obligations. He informed the House, which overwhelmingly authorized the decision, to think about this measure as the following logical step.

“While there are other policy solutions to address the underlying causes of high student debt and the high cost of legal education, it is imperative to create a lifeline for those who are several years into practice and are drowning in debt by removing hurdles to clearing insurmountable educational debt in bankruptcy proceedings,” stated Jennison, who now serves as a delegate-at-large to the House.

Debt with a distinction

In 2019, greater than 44 million debtors owed greater than $1.5 trillion in student loan debt, in line with knowledge from the Federal Reserve cited within the report accompanying the decision. It was the second-highest client debt class, behind solely mortgages.

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Student loans had been handled otherwise from different dischargeable debt after Congress handed the Education Amendments Act of 1976, which prohibited debtors from discharging these kind of loans in chapter for the primary 5 years of their compensation except they may set up undue hardship.

The Student Loan Default Prevention Initiative Act of 1990 prolonged the student loan discharge exception to seven years, and the Higher Education Amendments Act of 1998 amended the chapter code in order that federally assured student loans couldn’t be discharged in any respect except the borrower might show undue hardship.

Interpretation of what constitutes an undue hardship has fallen to the federal courts, which have disagreed over what debtors should do to show they meet this threshold, the decision’s report says.

In addition to different components, most courts have stated debtors should present they can not preserve a minimal way of life for themselves or their dependents in the event that they repay their student loans.

A final resort

Aaron Sohaski, director of student loan debt and monetary wellness for the YLD, stated that whereas it isn’t not possible to discharge student loans in chapter, the method imposes an pointless problem for legal professionals with vital quantities of debt.

“Like anyone faced with a personal decision to file for bankruptcy, lawyers choose this option as a last resort, and the undue hardship threshold makes this difficult task even harder,” Sohaski informed the House. “Many student loan borrowers recognize they won’t be able to find success, and therefore they won’t even try.”

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Several legislators have sought to handle this situation in recent times. Rep. John Katko, R-N.Y, launched the Discharge Student Loans in Bankruptcy Act of 2019. Sen. Dick Durbin, D-Ill., and Rep. Jerrold Nadler, D-N.Y., then launched the Student Borrower Bankruptcy Relief Act of 2019. Both didn’t go, nevertheless.

In early August, Durbin and Sen. John Cornyn, R-Texas, launched the Fresh Start Through Bankruptcy Act of 2021. The bipartisan invoice would permit federal student loans to be discharged with out an undue-hardship displaying as soon as debtors have been in compensation for at the very least 10 years.

Resolution 512 was co-sponsored by the YLD, Law Student Division and Standing Committee on Paralegals.

This story was initially printed within the October/November 2021 situation of the ABA Journal underneath the headline: “The Hardship of ‘Undue Hardship.”