Student loan borrowers need a better bankruptcy process: Durbin

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  • Officials in the Biden administration appear poised to reform the student loan bankruptcy process.
  • But the Department of Education has continued to oppose debt cancellation requests in court.
  • Senator Dick Durbin said it’s time to rethink the bankruptcy law that prevents relief to borrowers.

Daniel and Monica Woolley have $111,000 in student debt that they say they can’t pay off.

Although employed by the US Postal Service as a mail carrier, Daniel exhausted his paid leave to undergo knee surgeries, and is still unable to return to work due to complications from the surgery, according to a bankruptcy court document that the Woolleys presented in March. His wife, Monica, is a saleswoman who earns about $2,400 a month and has been donating plasma to help pay the bills.

The Woolleys say the cost of daily necessities and medical insurance for Daniel’s surgeries have put significant financial pressure on them. They filed for discharge of their debt through bankruptcy because they don’t see their income growing any time soon.

“Because of his age and poor health, Plaintiffs believe it is reasonably likely that his income will not be recovered because he will physically be unable to meet the demands of his occupation as a mail carrier for the U.S. Postal Service.” . “Mr. Woolley would show that he has no reasonable likelihood of advancing his occupation or increasing his income. Plaintiffs would show that his economic prospects will remain the same or deteriorate.”

Just over a month after the Woolleys filed their complaint, President Joe Biden‘s Department of Education filed a response opposing the request for dismissal. While that’s a common response in this type of legal case, it starts a process that makes it more difficult for student loan borrowers to get relief through bankruptcy than it is for people with other types of debt.

Senate Majority Whip Dick Durbin thinks it’s time to reassess that process.

“I also believe we need to rethink the provisions in our federal bankruptcy laws that make student loan debt one of the few debts that cannot be discharged in bankruptcy proceedings,” Durbin said on the Senate floor this week, adding that “bankruptcy should be allowed to be used as a last resort for borrowers who have nowhere else to turn.”

Biden administration officials have indicated a willingness to reform the bankruptcy process for student loan borrowers. But there is no word on what those reforms would be, or when they would be implemented, meaning borrowers continue to fight the government in court.

‘Borrowers facing extreme hardship are paying the price’

The reason it’s so hard to get rid of student debt in court largely boils down to the “undue hardship” standard, in which borrowers have to prove they can’t maintain a minimum standard of living, which is likely that their circumstances do not improve, and that they have made a good faith effort to pay their debt.

But show that the difficulties are not easy; very few borrowers seeking relief through bankruptcy have been able to provide enough evidence to qualify. And as a senator in 2005, Biden expanded that standard to apply to borrowers with private loans.

Biden’s Education Department has acknowledged problems with the process. On Monday, James Kvaal, the undersecretary for education, said: “We want to review that policy, and that’s something that’s underway now. There’s an interagency process for that, it’s not just at the discretion of the department, and we’re working pretty hard on that.” , in reality”.

Over the past year, however, the department has appealed discharge approvals, including from a borrower who said his expensive cancer treatment prevents him from earning enough money to pay off his debt.

Dan Zibel, vice president and chief attorney for Student Defense, an organization that defends borrowers’ rights, said in a recent statement that “although the Department of Education has publicly acknowledged the problems, to date, we have seen little in terms of solutions concrete”. policy changes, and borrowers facing extreme hardship are paying the price.

Durbin and some of his colleagues have offered legislative solutions. Durbin and Republican Sen. John Cornyn introduced a bill last year that would allow borrowers to file for discharge of their federal student loans in bankruptcy after 10 years and eliminate the undue hardship requirement.

And in late March, 27 Democratic senators said student loan borrowers had to pass an “unnecessarily high goal” to get rid of their debt in court, making it “virtually impossible for the unrepresented.”

Do you have a story to share about your student loan bankruptcy? Contact Ayelet Sheffey at [email protected]

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