Even though millions of Americans are bogged down with student loan debt, it’s one of the relatively few types of debt that is usually not dischargeable in bankruptcy. Typically, a person has to prove that “undue hardship” is caused by the debt.
Talk of student loan debt cancelation and forgiveness by the Biden administration and some legislators have gotten borrowers’ hopes up. However, nothing has come of that yet.
There’s a bipartisan bill in Congress that would allow more people to free themselves of this debt if they file for bankruptcy. The FRESH START Through Bankruptcy Act of 2021 would make federal student loan debt that is at least 10 years old a dischargeable debt. The undue hardship option would still be allowed for both private and federal loans and wouldn’t require the decade waiting period.
Why the legislation may be a more likely alternative than loan cancelation
There’s been some cautious optimism that this legislation could pass in even this highly divided Congress since it’s sponsored by two influential senators from different sides of the aisle. Further, unlike loan cancelation, which has gotten pushback as unfair to those who have already paid off their loans, this would apply only to people filing for bankruptcy who are struggling financially.
If your student loan debt is causing other financial hardships that prevent you from keeping up with your everyday expenses, let alone saving for all the things you dreamed of when you were getting your college education, it may still be worthwhile to consider bankruptcy as an option. Even if you aren’t able to discharge student loan debt, you can discharge other debt and ease your financial situation. Consider seeking some legal guidance to help you determine the best way forward.