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Will Student Loans once again be Dischargeable in Bankruptcy?

Student Loan

In May 2011, a U.S. Representative from Tennessee introduced a bill called the Private Student Loan Bankruptcy Fairness Act of 2011. The bill proposes to make private student loans generally dischargeable in bankruptcy (like they were before the revisions in 2005) as a way of addressing the mounting student loan crisis. The bill proposes to strike subpart B of Section 523(a)(8) of the Bankruptcy Code which makes general education-purpose loans nondischargeable. However, the bill also maintains the nondischargeability of government-guaranteed student loans. But, ensures that non-profit-backed loans, although also generally excepted from discharge, are only non-dischargeable if substantially all the funds for the loan program are provided by a non-profit.

The bill was referred to a subcommittee in July 2011, and there it remains awaiting further action. Movement is unlikely until after 2013 when the new Congress sits after the November 2012 elections. It appears that the bill only has a chance of emerging from committee if the democrats retake the House. This blog will track any developments related to this bill as they arise.

If you have questions about foreclosure, loan modification, bankruptcy, or other alternatives, please feel free to call my office at 954-484-9987. Or, send an e-mail to emil@fleysherlaw.com, or complete the contact form below.

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