Private Student Loans May Soon Be Dischargeable in Bankruptcy Again

In June 2011, United States Senators Durbin, Whitehouse, and Franken joined with several United States Representatives to introduce legislation to reinstate a fair playing field for debtors facing student loan debt by treating student loans issued by private lenders in bankruptcy the same way as private unsecured debt is treated. Before the 2005 bankruptcy code changes, only student loans issued or guaranteed by the federal government were not subject to discharge. When the bankruptcy law changed in 2005, all student loans, including those issued by private lenders became non-dischargeable.

Student loan debt can often times be the single biggest debt a consumer carries. Some individuals have student loan debt that is more than their home loan debt. Lenders can be ruthless when it comes to collection action because they know that the debtor cannot discharge the debt in bankruptcy. The new bill would restore the old bankruptcy laws, as it relates to private student loans, so that privately issued student loans will again be subject to discharge.

Check back for legislative updates on the student loan bill and other consumer debt matters before Congress or call me with any questions you may have regarding student loan debt or any other consumer debt issues.