Pressure mounts on Biden administration to change student loan bankruptcy rules

The president Joe Biden has been campaigning to change the bankruptcy system, which is extremely difficult to clear student loans. The borrower must be able to meet a high burden of proof, namely that the repayment of loans will result in “undue difficulties”.

In the fall of Biden’s federal chief of student aid, Richard Cordray, told Congress that the Department of Education had begun discussions about reforming rules for student loan bankruptcy. However, the department has recently been actively fighting relief for borrowers in bankruptcy courts of the federal government.

Since the beginning in the new year the lawyers of the government challenged two bankruptcy rulings where judges sided with the borrower and allowed their student loan debts to be repaid. The government swiftly retracted the appeals, however, not before bringing attention to what advocates for the borrower termed the “stubborn dedication” to a flawed policy.

“Withdrawing any opposition to individual student debt forgiveness because of media pressure isn’t an option,” said Dan Zibel the vice chief counsel and president. To his organization, the National Student Legal Defense Network in an announcement.

“The agency is in essence playing a game with the financial situation of families in financial distress,” he added.

The National Student Legal Defense Network was the leader of a group of advocacy groups last week in an making an appeal to Ministry of Education immediately suspend any efforts to block or appeal the discharge of student debt during bankruptcy conduct research.

The Department of Education spokesperson told CNN this week that the department is “committed to re-examining its approach to Bankruptcy HQ in order to speed up the process and ensure that borrowers have a fair shot.”

“In this time, ED and the Department of Justice are working together to make sure that government doesn’t appeal bankruptcy decisions where the borrower has shown unjustified difficulty,” spokeswoman said in written statement. electronic.

The student loan is not always discharged in bankruptcy

Student loans are considered differently in bankruptcy court in comparison to other kinds of debt. This makes it difficult however not impossible to get a discharge.

A person has to submit a separate lawsuit pertaining to student loans in the bankruptcy procedure, also called”the “adversarial process.” The borrower needs to show that the payment of student loans will cause “undue burden” on the borrower as well as his family members.

In the past, courts have used what’s known as”the “Brunner test” to determine whether the borrower has demonstrated unjustified hardship, according to the National Consumer Law Center. It has to be proven that the borrower is unable to maintain the minimum standards of living when required to pay back student loans, that the situation will last for the duration of the period of repayment, and that a reasonable effort to pay was made “It does not work,” Cordray told the House committee in the last hearing.

According to the current regulations that those who are in bankruptcy “are obliged to appear in the court – if one can imagine it and tell the court how awful their lives are so that they can seek some sort of bankruptcy relief but to not always get the relief,” he said.

Two borrowers have recently been granted relief

Although it is not common for a judge to decide to dissolve student loan debts in bankruptcy, it’s been twice this year.

In the middle of January in mid-January, in mid-January, a Delaware bankruptcy judge granted a discharging of about $95,000 of student debts to Ryan Wolfson, who graduated from Penn State University in 2010 graduate and originally declared bankruptcy in the year the year 2019, according to court papers.

Wolfson 35, who is a doctor, revealed the struggle in finding a position paying enough to pay for his expenses, that was made harder by epilepsy. He was delivery driver until the year 2019 when he had seizures while driving and caused the car to be destroyed.

“Since graduation from college the debtor was unable to have a decent apartment or food items or even transportation for basic needs without the assistance from his dad,” the Chief Justice Laurie Selber Silverstein wrote. in the course of his decision.

“It’s not due to a insufficient work ethic. The variety of jobs he had even though he worked at full-time and was able to pay back the student loans. Since there is no evidence that his circumstances is going to improve, Wolfson is entitled to the right to a discharge,” she added.

In a different case an appeals court has granted the repayment over $110,000 of student debt to Monique Denise Wheat. She is a single 32-year-old mother living in Alabama according to court documents. The judge also ruled that the payment will cause “undue difficulties” to Wheat.

Wheat obtained a bachelor’s degree in criminal justice at The University of Troy and also was in debt to get an advanced master’s degree in clinical counseling at the University of Bellevue, but she didn’t graduate. Wheat hasn’t been able to find work that is in connection with her education and is an employee in a medical facility.

Proposed reforms

A bill from Congress is required to change the bankruptcy code, however some lawyers suggest that they believe the Department of Education can also stop opposing the numerous requests for the cancellation of student loan during bankruptcy cases. bankruptcy.

“The Department can use its current administrative authority to stop its practice of suing for student loan discharges in its bankruptcy cases involving borrowers,” according to a legal article that was published in Minnesota Law Review. The essay is written by Cardozo School of Law professor Pamela Foohey and Aaron Ament President of the National Student Legal Defense Network.

The bill that seeks to reform the bankruptcy system has bipartisan support from both parties. A bill to make it easier to pay off student loans that are bankrupt was proposed in the last session in the Senate by senator Dick Durbin, a Democrat from Illinois and senator John Cornyn, a Republican from Texas.
Biden has backed the bankruptcy reform plan of Massachusetts Senator. Elizabeth Warren during the 2020 campaign for the presidency in an effort to attract left-leaning voters within the Democratic Party. The proposal allowed student loan debt to be repaid in bankruptcy, similar to other debts.

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Michael J. Birnbaum