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Lawmakers push to include student loan debt in Chapter 7

Anyone who has emerged from college only to be confronted by a mountain of debt understands how difficult it can be to establish a career and begin to pay down student loans. For some, these first few years require a degree of hardship, but the end result is a well-paying position in the field of their choice. For others in California, the path is not so smooth, and debt continues to accrue in the form of credit cards and loans. At some point, many will consider whether Chapter 7 bankruptcy is the best course of action.

Unfortunately, student loan debt is not eligible for discharge under current bankruptcy law. That may change, however, as the House brings new legislation to the table in the form of Discharge Student Loans in Bankruptcy Act. Sponsored by Representative John Delaney, the bill is intended to level the playing field when it comes to eliminating debt through personal bankruptcy.

Currently, according to Mr. Delaney and others who support a change in the law, a lack of fairness exists because student loan debt is one of the very few types of debt that cannot be eliminated through the discharge process. This leaves individuals who are struggling with their debt in a worse financial position than those who have amassed credit card debt or other outstanding accounts. By allowing student loans to be included in the list of dischargeable debt, those behind the bill hope to make bankruptcy protection a more comprehensive solution to those who file, including people who struggle under student loan debt.

Legislative changes take time, a luxury that many who are buried in debt simply do not have. While this bill could lead to improvements in bankruptcy law, many California consumers need debt relief now. For those individuals and families, it is important to understand that while Chapter 7 bankruptcy will not eliminate student loan debt under current law, it can erase many other forms of unsecured debt. The end result can be a far more flexible budget that allows one to cover their living expenses and their student loan payments.

Source: thinkadvisor.com, "Student Debt Could Be Discharged in Bankruptcy Under New House Bill", Melanie Waddell, Jan. 22, 2015

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