Publication Date

Fall 2021

Journal

Minnesota Law Review Headnotes

Abstract

The United States' consumer bankruptcy system supposedly gives "honest but unfortunate" individuals "a new opportunity in life with a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt." Access to bankruptcy's discharge of debt is especially important in the wake of the COVID-19 pandemic, which has resulted in a once-in-a-century economic crisis that is projected to increase bankruptcy filings by people struggling to recover. Those who file bankruptcy will find a system that is already difficult to navigate and has long-recognized racial and gender disparities in access and outcomes.

Student loan borrowers will find a system with even more barriers to relief from their education debt. These barriers are two-fold: some are implemented by bankruptcy laws, while others are put up by loan holders-including the United States Department of Education (Department). This Essay focuses on how the Department should update its policies for how it responds to borrowers who seek to discharge their student loans in bankruptcy.

As discussed in Part I, the Department's current policies for determining whether and how to contest a borrower's request for discharge of student loans rely on an overly rigid application of case law regarding education loan dischargeability. These policies result in the Department wasting resources to contest discharge requests that likely will yield the Department little recovery. It also unnecessarily leads the Department to hurt individuals and families struggling to get out from under unmanageable debts.

Part II details two options for how the Department can update its approach to bankruptcies to ensure that it calibrates its actions to make the promise of a fresh start more real for student borrowers. Importantly, the Department can implement the framework set forth in this Essay without substantially negatively impacting the net amount of money that it is likely to recover from borrowers who file bankruptcy and seek to discharge their student loans.

Volume

106

Issue

1

First Page

1

Last Page

17

Publisher

University of Minnesota Law School

Keywords

Bankruptcy Law, Bankruptcy, Loans, Banking and Finance Law, Education Law

Disciplines

Banking and Finance Law | Bankruptcy Law | Education Law | Law

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