The Consumer Commission Announces Recommendations That Will Improve Borrowers’ Ability to Discharge Student Loan Debt in Bankruptcy

The American Bankruptcy Institute’s (ABI) Commission on Consumer Bankruptcy released its final report that included recommendations on improving the consumer bankruptcy system. Most importantly, are proposed changes to student loan debt in bankruptcy.

The statistics do not lie. Among the Class of 2018, 69% of college students took out student loans, and they graduated with an average debt of $29,800, including both private and federal student loan debt.

Meanwhile, 14% of their parents took out an average of $35,600 in federal Parent PLUS loans. Another staggering statistic: Americans owe more than $1.56 trillion in student loan debt, disbursed among 45 million some borrowers. That is about $521 billion more than the total U.S. credit card debt.

The recent report comes from the ABI’s Commission on Consumer Bankruptcy, which is responsible for researching and recommending improvements to the current consumer bankruptcy system. The recommendations included changes to the overall Bankruptcy Code, changes to the Federal Rules of Bankruptcy Procedure, and administrative rules and actions.

Additional recommendations included: best practices that both attorneys and judges can implement when it comes to handling student loan debt. This report is the first one in a series of recommendations that will be issued by the ABI.

For the most part, bankruptcy courts use the Brunner test when determining if student loan debt can be discharged in bankruptcy. This test requires that a borrower meet the ‘undue hardship’ standard. The term “undue hardship” may seem simple on the surface, but the problem is, most courts do not apply the test in the same way, and require a significant hardship be proven before any discharge can be granted, if at all.

The Brunner test requires a borrower show that he or she is unable to maintain a “minimal” standard of living while paying their student loans. For example, not being able to afford basic living expenses, provide for their household, etc. In addition, the borrower must show that this situation will likely continue, and up to this point they have made a good faith effort in paying back their student loans.

The report stated that student loan debt depresses the economy significantly and that changes need to be made soon to fix the problem before it becomes an even bigger issue.

One of the biggest recommendations from the report was that bankruptcy law be rewritten to allow student loan debt to be discharged in bankruptcy. Rather than rely on an inconsistent legal standard, the law itself needs to provide a way for student borrowers to receive some relief from their student loan debt in bankruptcy.

The report recommended that the law be amended to allow discharge of student loans that are made by private, nongovernmental entities; loans that were taken out by someone other than the student, including parents who took loans out for their children to receive an education; and loans that are currently being paid through a five-year Chapter 13 bankruptcy plan.

One interesting note with respect to these recommendations is they eliminate the protection that private student lenders have previously received. It also benefits parents or others who have taken loans out to help their children.

Bankruptcy is meant to give individuals and families a fresh start, and this fresh start should be equally offered to those individuals struggling with student loan debt. While these recommendations are just that: recommendations, it does not mean that they cannot spark massive changes to the bankruptcy system. It will be interesting to see how Congress reacts to the release of this report. Hopefully we will see relief in the near future for those struggling to pay their student loans.

If you are looking for student loan forgiveness or in student loan repayment, you should look into the Income Based Repayment (IBR) Program. It allows you to pay 10% of your gross income toward your student loans so if you are unemployed, your student loans payment will be zero!

To enroll in IBR or another IDR plan, contact your student loan servicer or request an IDR plan at Your servicer can direct you through its specific process of switching your loans over to an IDR plan.

So many of our clients struggle with their monthly student loan payments. My law firm has successfully wiped out student loans in bankruptcy, but it wasn’t easy. Call me if you are having problems paying your debts. Having debt make you stay up at night. It stresses you out. It ruins relationships. I went through it. Boldly, I mustered up the courage to call a bankruptcy attorney and I pressed the restart button in 2008. And even though ten years has passed since I made that decision to reset my life, I never forgot what it did for me and how it helped me start over. It even inspired me and my law firm to become the largest filers of bankruptcies in the country and in the top two in Florida all from our offices in Orlando and Kissimmee. Remember, we are local in your hometown.

Go to or call 407-777-7777 to set up a free private consultation and learn more information. Because Life Has a Restart Button.