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Elizabeth Warren’s Bill to Help Student Borrowers Pay Off Their Court Debts

  • Warren and Nadler reintroduced a bill to reform the bankruptcy system for student borrowers.
  • This would simplify the process for borrowers to get rid of debt with a judge’s approval.
  • Borrowers currently have to prove a very strict standard to discharge their debt in court.

Two Democratic lawmakers want to make sure that canceling President Joe Biden’s student loans isn’t the only avenue of relief borrowers will get.

Last week, Massachusetts Senator Elizabeth Warren and House Judiciary Chairman Jerrold Nadler reintroduced the Consumer Bankruptcy Reform Act, which would simplify the bankruptcy system and provide a path of relief for Americans who have no other way out of debt.

For student borrowers in particular, getting rid of debt through bankruptcy is very difficult due to the strict undue hardship standard, which requires a borrower to prove they cannot maintain a minimum standard of living. , that his situation is not likely to improve and that they have made a good faith effort to repay their debt.

Warren and Nadler’s legislation would make the process easier for borrowers who have no other way to repay their loans.

“The Consumer Bankruptcy Reform Act is taking long overdue steps to make it a little easier and a little less expensive for people in dire financial straits to get meaningful relief from bankruptcy,” Warren said in a statement. “I am grateful to working with President Nadler on this important legislation to give struggling families a better chance to get back on their feet. »

The bill would create a new Chapter 10 bankruptcy code, according to CBS Newswhich would allow student loans to be treated like credit cards and other forms of consumer debt, meaning student loan borrowers could file for Chapter 10 and have their loans forgiven students through a simpler process once a judge approves it.

Along with provisions to help student borrowers, the bill would also close loopholes in the bankruptcy code that help wealthy people and address racial and gender disparities by exempting income related to child support, child tax credit and the earned income tax credit taking into account a borrower’s financial ability to repay debt.

Warren and some of his fellow Democrats have previously voiced the need to reform the bankruptcy system for student loan borrowers. In September, she wrote a letter to Attorney General Merrick Garland regarding the undue hardship standard, which “has proven so difficult to meet that most borrowers don’t even attempt to repay their student loans through bankruptcy.”

“To support the administration’s efforts to overhaul the student loan system and ensure that bankruptcy relief is a viable option for borrowers in serious financial difficulty, it is essential that you release and implement these updated guidelines without delay,” she wrote.

While the Biden administration has pledged to reform the student loan bankruptcy process, little progress has been made so far. Richard Cordray, Head of Federal Student Aid Told a House education subcommittee last fall that “the process isn’t working well. It needs to be reformed…and we’re committed to it.” But throughout the pandemic, the administration has continued to oppose borrowers’ requests to seek debt relief in court, prompting Democratic lawmakers to reform the process as soon as possible.

And, as Insider previously reported, Biden himself played a role in raising bankruptcy standards. In 2005, he supported the Bankruptcy Abuse Prevention and Consumer Protection Act as a Senator, which extended the undue hardship requirement to borrowers with private student loans, broadening the scope of borrowers who should prove their disastrous financial situation in court.

Warren and Nadler’s bill also received support from 86 law professors who wrote in a letter last week that “the current consumer bankruptcy system is too expensive and too complex to perform this function. Its doors are often closed to people who must file a complaint because they lack the ways to hire a lawyer to help them”.

“The Consumer Bankruptcy Reform Act rolls back time and makes student loans subject to bankruptcy discharge,” they wrote. “Debtors who can pay won’t be able to shirk their obligations – student loans or otherwise. But for debtors who can’t pay, allowing student debt relief will free people from the burden of student loans and help the economy by freeing up income for productive investments, such as buying a home and starting a family.”