The extreme restrictions imposed on student loan borrowers trying to discharge their student debt in bankruptcy may be reviewed by the United States Supreme Court.
By way of background, the whole concept of “bankruptcy” was created as the ultimate safety net for consumers in a market economy. The idea is that sometimes bad things happen to people, mistakes are made, or consumers get in over their heads; regardless, people deserve a fresh start and a second chance to succeed in our society.
Unfortunately, over the course of the past two decades federal legislation has made it increasingly difficult for consumers to discharge their student loans in bankruptcy. Congress carved out a special standard for student loans, requiring that student loan borrowers prove that an “undue hardship” prevents them from paying off their student loans in order for a bankruptcy discharge to be granted. This standard was never really defined in legislation, but judges interpreted this phrase to make it extraordinarily difficult for borrowers to prevail. In the meantime, student loan debt and higher education costs increased at nearly exponential rates.
It is in this context that individual bankruptcy judges have begun to buck the trend of harsh bankruptcy rulings against student loan borrowers, recognizing the vast disconnect that now exists between the “undue hardship” standard as defined by judges in previous decisions, and the current student loan environment.
And now, the issue may be decided by the United States Supreme Court. Read More