In August 2021, a new bi-partisan bill titled “The Fresh Start Through Bankruptcy Act of 2021” was introduced in the Senate by Sen. Richard Durbin (D-IL) and Sen. John Cornyn (R-TX). The bill seeks to amend the Bankruptcy Code in order to allow student loans to be more easily discharged in bankruptcy (under certain circumstances). Presently, Debtors in bankruptcy must file an action as part of their bankruptcy case and meet a “totality of the circumstances” test in order to receive a discharge of their student loans. Under that test, the Court will look at the Debtor’s complete financial situation, including future prospects for additional income for repayment, to determine if allowing the student loans to survive the bankruptcy discharge would be an undue hardship for the Debtor. “[D]ischarges for undue burden are granted in only ‘truly exceptional circumstances.’” Murphy v. Educ. Credit Mgmt. Corp., 511 B.R. 1, 4 (D. Mass. 2014) (quoting Fed. Credit Union v. DelBonis, 72 F.3d 921, 927 (1st Cir. 1995)). As the reader can tell, discharging student loans through bankruptcy is a rare (and costly) occurrence.
The Fresh Start Through Bankruptcy Act of 2021 aims to change that by making Federal student loans eligible for discharge in a bankruptcy ten (10) years after the first loan payment is due, without having to prove any undue hardship. If the bankruptcy was filed before the ten (10) year anniversary of the first payment, then the traditional totality of the circumstances test used in the 1st Circuit (which includes Massachusetts) would still apply. This test would still apply in regards to private student loans. The bill seeks to pay for expanding the availability of a bankruptcy discharge to student loans by requiring certain higher-educational institutes to repay a portion of the discharged student loans to the government. By colleges (potentially) sharing the cost, the goal of the bill is in part to promote responsible student loan lending at the college level. Currently, student loan debt amounts to over $1.7 trillion of debt in the United States. This is a developing story to keep a close watch on. The fact that the bill is bipartisan is exciting for those that have been calling for reform to the Bankruptcy Code to deal with student loans. If you are presently burdened by student loans, please contact our office to review your bankruptcy and non-bankruptcy options.