U.S. Senators Unveil Bill Offers Clear Path to Cancel Student Loan and Medical Debt in Bankruptcy
A bill introduced by US Democratic Senators aims to make it easier for Americans to pay off student loans and medical debts. If passed as currently drafted, the Medical Bankruptcy Fairness Act of 2021 would radically change the U.S. bankruptcy system by removing certain procedural hurdles that make the bankruptcy process complex and creating a clearer path for discharging bankruptcy. debts that affect millions of Americans.
The bill is a direct response to the struggles posed by COVID-19 and to deal with a potential influx of bankruptcy filings due to Americans losing their jobs and insurance due to the pandemic. US Senator Sheldon Whitehouse (D-RI) declared, “[w]We must ease the burden on families facing the health and financial fallout from this pandemic, our employment-based health insurance system is ill-suited to a pandemic. “
The bill proposes several changes to the current bankruptcy process, including:
- Ditch procedural hurdles like credit counseling. This is currently required for most individuals during the bankruptcy process. Many consider this requirement unnecessary because some debts, such as medical debts, are incurred without the debtor being liable, and counseling would provide little or no benefit;
- Provide additional protections to an individual’s home by allowing retention of at least $ 250,000 of home equity;
- Create a more accommodating bankruptcy process for those who are forced into bankruptcy due to medical debt or because they have lost their jobs due to a public health shutdown (e., COVID-19[FEMALE);and[FEMININE);et
- Allow the release of student loans, which in the current system is rare.
Currently, student loan debt is treated differently from other types of debt in that the debtor must demonstrate “undue hardship” before their student loan is discharged. Additionally, debtors must initiate adversarial proceedings, essentially bankruptcy lawsuits, and show that the borrower meets the undue hardship standard before the student loan debt can be discharged. A student lender is allowed to produce evidence that the debtor has failed to meet the undue hardship standard, making it more difficult for a debtor to pay off student loan debt.
Democratic senators proposed a similar bill last year, which failed to pass through the then Republican-controlled Senate. With the Democratic Party holding a majority in both houses of Congress, although only by the vice president’s ability to vote “yes” to break the tie in the Senate, the bill stands a better chance of passing. Given the various relief measures being discussed by Congress and the potential widespread impact on the bankruptcy process in the United States, it will be important to closely monitor the consideration of the bill by Congress.