Group of senators reintroduce legislation to include private student loans in bankruptcy filings

Currently, when an individual declares bankruptcy, his or her student loans are not included in the debt forgiveness or discharge that comes about as part of the process. This has been a huge hindrance for many college graduates who are declaring bankruptcy but are unable to recover fully from the proceedings. However, six senators from the Midwest and the East Coast have reintroduced a bill to Congress that they hope will change this policy, allowing private student loans to fall under the umbrella of debt erasure that comes about from bankruptcy. 

The Fairness for Struggling Students Act of 2013 was reintroduced January 23, aiming to reverse legislation enacted in 2005 that allows private student loans to get the same treatment as federal loan options during bankruptcy proceedings. The bill was given an added boost on February 3 when influential California Senator Barbara Boxer, who has been active in proposing legislation to help improve the mortgage markets, came on as a cosigner for the bill.

Originally, an earlier version of the act had been brought to the table back in 2010 and then in 2011, and both times it failed to gain enough traction for approval by members of Congress. The legislation would affect Chapters 7, 11 and 13 of the Bankruptcy Code – the three main types of bankruptcy applicable to individuals.

“Young Americans are being hamstrung by record debt levels,” Senator Dick Durbin of Illinois told the press. “Unless we take action to protect borrowers, student loan debt will be the next mortgage crisis.”

Although bankruptcy helps to erase a good portion of an individual’s debt burden, it still affects the filer’s credit score and credit report for seven to 10 years in most cases, depending on which chapter of the Bankruptcy Code an individual files for. Graduates should do their best to explore other student loan repayment options before resorting to all-out bankruptcy.