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President Biden’s Plans for Student Debt Relief and Bankruptcy

Indoor shot of young European Caucasian girl looking at financial documents at home with deeply bored face looking sick and tired of her economic problems, trying to check counts and all details

On January 20, 2021, Joe Biden was sworn into office as the 46th President of the United States. In an unexpected turn of events, the November election also saw Democrats take back a majority in the U.S. Senate (more precisely, the Senate is now split evenly, with Vice President Kamala Harris to cast the deciding vote). Democratic politicians have long discussed student loan reform as a priority. With the presidency and both houses of Congress now effectively controlled by Democrats, what can we expect or hope for in terms of student debt relief? Continue reading to learn about discharging student debts in bankruptcy and how that might change under the new administration. If you are struggling with student loans or other consumer debt, reach out to an experienced Poughkeepsie bankruptcy lawyer to explore your options for debt relief.

Discharging Student Debt in Bankruptcy

Discharging student loans in a bankruptcy proceeding is notoriously difficult. For many years, it was next to impossible. Student debt is not automatically discharged in bankruptcy the way that other unsecured debt such as medical bills may be. Instead, a bankruptcy petitioner must establish that they would suffer “undue hardship” if forced to continue paying off their student loans.

Historically, courts essentially required debtors to prove that they are or would be in extreme poverty if forced to continue paying their student loans. In recent years, some bankruptcy courts have relaxed the standard for “undue hardship.” Debtors must still generally show that they would be unable to maintain a minimal standard of living if forced to continue paying student loans, that their financial circumstances are unlikely to change in the foreseeable future, and that they have tried in good faith to repay their loans. Many courts now hold that “minimal standard of living” does not mean the poverty line and will take a more comprehensive view of a petitioner and their financial circumstances when evaluating hardship.

Hope for the Future

The undue hardship standard is still tough to meet. Thankfully, there is hope that things may change under the new administration. During the election cycle, President Biden endorsed a bankruptcy reform plan expressed by Senator Elizabeth Warren, which included significant reforms to a 2005 bankruptcy bill (the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act). That law stated that student loans would not be dischargeable absent the nigh-impossible “undue hardship” showing.

While Biden himself voted for the 2005 bill, he has since adopted Sen. Warren’s view that the law has done more harm than good. Biden’s campaign stated that his administration would pursue several means to relieve the burden of student debt across the country, including by enacting rollbacks to the 2005 bankruptcy law. Among those rollbacks would be removing student debt from the list of nondischargeable debts in bankruptcy.

Whether the new Congress and the President can get such a law passed and enacted is not perfectly clear. Even with a majority in Congress, laws are difficult to pass. Many laws require a 60-senator supermajority, rather than a simple 51-50 majority. There is much reason to be optimistic, however, and our experienced bankruptcy legal team will be closely watching the development of bankruptcy law and reform under President Biden.

One more thing to watch: it’s possible President Biden will use his authority to cancel federal student loan debt via executive order. It’s unclear how far this power extends and how much debt could be forgiven by the stroke of the executive pen, but officials are said to be looking into the possibility while Congress mulls ways to extend this authority to the president through legislative action.

If you are struggling with debt in New York, contact the seasoned and effective Hudson Valley bankruptcy lawyers at the Law Office of Taran M. Provost, PLLC for a free consultation on your case at 845-675-3243.

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