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  • Robert Weed

Bankruptcy Student Loans and Undue Hardship

The whole idea of bankruptcy is that the country is better off if people who cannot pay their debts are able to start over. That should apply to student loans, too. For people whose degree has made them good money, bankruptcy wouldn’t apply. For people who just can’t pay, those people, and their kids, and the country are all better off if the debts are cleared.

That idea doesn't apply in student loans. The bankruptcy law now says student loans can be cleared only in cases of “undue hardship.” Over the years the courts have said “undue hardship” basically means paralyzed, never work again. Under that definition, according to the chief judge of the bankruptcy court here in eastern Virginia, you just can’t win in court on “undue hardship.”

There's zero chance this Congress will change that "undue hardship" rule. In our current political environment, support for bi-partisan cooperation often leads to defeat in the next primary.

But Biden Can Do One Thing

Under current policy, Government lawyers, the U.S. Department of Justice, go into bankruptcy court and fight against consumers trying to prove “undue hardship.” Those government lawyers argue that the consumer should work longer hours or get their children to work to help pay for the loans.

Biden can call off those government lawyers. If the consumer, without government opposition, can persuade the judge–and that may still be tough–the consumer should win. And if the consumer wins at trial, the government should not appeal.

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