Student Loan Borrowers Need a Better Bankruptcy Procedure: Durbin

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  • Biden administration officials appear poised to reform the bankruptcy process for student loans.
  • However, the Department of Education has continued to challenge requests for debt relief in court.
  • Sen. Dick Durbin said it’s time to reconsider bankruptcy law that keeps borrowers from relief.

Daniel and Monica Woolley have $111,000 in student debt that they don’t think they can afford.

Though he’s employed by the US Postal Service as a mail carrier, Daniel has exhausted his paid leave to have knee surgery and he’s still unable to return to work due to complications from the surgery, according to a bankruptcy document the Woolleys found in submitted in March. Monica, his wife, is a salesperson who makes about $2,400 a month and donates plasma to pay the bills.

The Woolleys say the cost of living expenses and medical insurance for Daniel’s surgeries placed a significant financial burden on them. You have filed for bankruptcy because you do not expect any increase in income in the foreseeable future.

“Because of his age and poor health, plaintiffs believe there is a reasonable likelihood that his income will not recover because he will be physically unable to meet the demands of his job as a letter carrier for the U.S. Postal Service.” , says the file . ‘Mr Woolley would show that he has no reasonable prospect of advancement in his profession or any increase in income. Plaintiffs would demonstrate that their economic prospects will either remain the same or worsen.”

A little over a month after the Woolleys filed their complaint, President Joe Biden’s Department of Education filed a response against the dismissal motion. While this is a common response in this type of legal case, it starts a process that makes it harder for student loan borrowers to obtain relief from bankruptcy than for those with other types of debt.

Senate Majority Whip Dick Durbin believes it’s time to reevaluate this process.

“I also believe we need to reconsider provisions in our federal bankruptcy laws that make student loan debt one of the few debts that cannot be settled in a bankruptcy proceeding,” Durbin said in the Senate this week, adding that “bankruptcy should occur.” may be used as a last resort for borrowers who have no other point of contact.”

Biden administration officials have expressed a willingness to reform the bankruptcy process for student loan borrowers. But there’s no word on what those reforms would look like or when they would be implemented, meaning borrowers are continuing to fight the government in court.

“Borrowers in extreme need pay the price”

Much of the reason it is so difficult to get rid of student debt in court boils down to the “unfair hardship” standard, which requires borrowers to demonstrate that they cannot maintain a minimum standard of living, that their circumstances are unlikely to improve, and that they have made good faith efforts to repay their debts.

But proving this need is not easy; very few borrowers seeking bankruptcy were able to provide enough evidence to qualify. And as a senator in 2005, Biden extended that standard to personal loan borrowers.

Biden’s Department of Education has acknowledged problems with the process. On Monday, James Kvaal, a Secretary of State for Education, said: “We want to review this policy and that is something that is happening right now. There’s an inter-agency process for that, which isn’t just at the discretion of the department, and we actually work pretty hard.”

But over the past year, the department has appealed layoff approvals, including from a borrower who said her costly cancer treatment was preventing her from earning enough money to pay off her debt.

Dan Zibel, the vice president and chief counsel for Student Defense, an organization that advocates for borrowers’ rights, said in a recent statement, “Although the Department of Education has publicly acknowledged the issues, so far we’ve seen little concrete policy changes, and borrowers.” who face extreme difficulties pay the price.”

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

And in late March, 27 Democratic senators said student-loan borrowers had to overcome an “unnecessarily high bar” to get rid of their debt in court, making it “virtually impossible for those without representation.”

Have a story to tell about your student loan bankruptcy? Contact Ayelet Sheffey at [email protected]

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