Back in 2005 when the Bankruptcy Code was amended it more broadly defined what was considered a non-dischargeable student loan debt. Going back even further….I can remember when student loans of all kinds were dischargeable in bankruptcy albeit they had to be of a certain age. That changed with a rider to the Higher Education bill of 1998 if my memory serves me correctly. (Note that there has always been an “undue hardship” exception and student loans could and can still always be discharged under that provision…but unfortunately proving that a debtor meets that high standard for that is nearly impossible to prove without some sort of severe disability factoring into the picture).

At any rate…..memory lane may be a tad bit interesting to those who track bankruptcy legislation but not much use for those who are wondering what is going on in the here and the now. Under the proposed legislation borrowers would still be stuck with the traditional federal loans which would be Perkins and Stafford loans but possibly could get some relief for private lender loans. Even Sallie Mae has indicated a willingness for lightening up on the standards for discharging student loan debt provided there has been a good faith effort to repay over a 5 – 7 year period. Under the old standard it was simply the ticking of the clock…7 years from the date they were first due in repayment or the date they were consolidated into a new loan and they were subject to discharge. Exactly what kind of good faith effort Sallie Mae is talking about here I’m not sure…that would get fleshed out if the legislation that Senator Durbin and Congressman Cohen if it gains a foothold and moves through the legislative process if indeed it would become part of the bill at all.

So….perhaps there is a little ray of hope. Quite a few of my clients have student loan debt issues and the relief I can offer them is small at this point. We can plug them into a chapter 13 repayment plan to keep their creditors off their backs for up to 5 years and hope that there are rosier financial days ahead where they can then manage them…or maybe we’ll get lucky and some new legislation will render those kinds of debts dischargeable.

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