When Did Laws Go Into Effect Preventing Bankruptcy of Student Loans?

By Mary Jane Freeman

Prior to 1976, debtors could discharge all student loans in bankruptcy. However, that slowly changed with a series of amendments to preexisting bankruptcy law, making it harder to discharge student loans. As a result, as of 2013, debtors can only discharge education loans if they can prove that paying these loans creates an undue hardship for themselves and their dependents. The criteria for discharging student loans is so stringent that most bankruptcy filers can't satisfy it.

Prior to 1976, debtors could discharge all student loans in bankruptcy. However, that slowly changed with a series of amendments to preexisting bankruptcy law, making it harder to discharge student loans. As a result, as of 2013, debtors can only discharge education loans if they can prove that paying these loans creates an undue hardship for themselves and their dependents. The criteria for discharging student loans is so stringent that most bankruptcy filers can't satisfy it.

Early Bankruptcy Law

Bankruptcy was governed by the Federal Bankruptcy Act until 1976. However, Congress established a commission to look into the bankruptcy system during the 1970s and suggest reforms. In 1976, Congress adopted the commission's recommendations, which resulted in the Bankruptcy Reform Act of 1978, known as the U.S. Bankruptcy Code. The Bankruptcy Code replaced the preexisting Bankruptcy Act and limited the dischargeability of student loans. At first, the new law excluded student loans made by the government, colleges and universities from discharge; however, other student loans remained dischargeable as long as you were repaying for five years or they represented undue hardship. Over a period of approximately 25 years, additional limitations were enacted further eliminating the dischargeability of student loans. One notable one was the Bankruptcy Amendments and Federal Judgeship Act of 1984, which also made private student loans from nonprofit lenders non-dischargeable.

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Bankruptcy Law Today

A significant amendment to the U.S. Bankruptcy Code occurred in 2005 with the Bankruptcy Abuse Prevention and Consumer Protection Act. Under this Act, additional qualified student loans are exempt from discharge, including most private student loans. Prior to the amendment, only private student loans funded in whole or in part by the government or a nonprofit organization were exempt from discharge.

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Can Chapter 7 Bankruptcy Discharge Education Expenses?

References

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What Is Dischargeable in Bankruptcy?

Most debts are dischargeable, or wiped out, in bankruptcy, from credit cards and personal loans to medical bills and unpaid rent. However, some debts cannot be discharged based on when they were incurred or the type of debt they are. For example, student loans are typically not discharged in a bankruptcy proceeding, along with debts obtained by fraud.

Bankruptcy Types & Laws in Iowa

Federal law governs Chapter 7 and Chapter 13 bankruptcy proceedings in Iowa, as it does in every state. Where you live determines in which court you must file your bankruptcy. Iowa is divided into two judicial districts. Offices of the Northern District Court are located in Cedar Rapids and Sioux City, with divisions in Fort Dodge, Mason City and a few other locales. The Southern District Court is located in Des Moines.

Rules for Filing a Second Bankruptcy

Depending on the type of second bankruptcy you want to file, there may not be a waiting period or a waiting period of up to eight years. A second bankruptcy may also be filed after a dismissal of the first one. A dismissal is different from a discharge. A discharge releases you from any liability to your creditors, while a dismissal is when the court throws out your case before it is completed. Usually, a dismissal arises from a failure to file necessary documents or failing to make payments under a Chapter 13 repayment plan.

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