WASHINGTON–As Congress mulls an overhaul of U.S. bankruptcy laws, Sen. Elizabeth Warren (D-MA) reportedly plans to reintroduce a bill that would create a potential path for Americans to erase their student loan debt.
The Consumer Bankruptcy Reform Act of 2022 would create a new provision in the U.S. bankruptcy code — Chapter 10 — under which student loans would be treated like credit cards, medical expenses and other consumer debt, CBS News reported. Borrowers could file for Chapter 10 and have their student loan balance cancelled with approval from a bankruptcy judge, the report states.
The Massachusetts Democrat was set to introduce the measure yesterday during a House Judiciary hearing on bankruptcy reform.
Warren's proposal, co-sponsored by Democrat Jerrold Nadler of New York, comes as student loan debt has reached a record $1.7 trillion, CBS News reported.
Federal student loan payments, which have paused for the past two years because of the pandemic, are set to restart January 1.
Warren first introduced the legislation in 2020, but it stalled amid Republican opposition in the Senate, according to the report.
Additional Changes
Warren's bill would also eliminate Chapter 13 bankruptcy, which allows people to pay off a portion of their personal debt over three to five years.
“In another important change, the bill would bar individuals from filing for Chapter 7 — the provision companies often use to restructure their debts,” CBS News stated. “Eliminating those two options in favor of a Chapter 10 filing would simplify the bankruptcy process, which is cumbersome and costly for most individuals,” Warren's office said.
Warren has long argued that the current bankruptcy law hurts the average American because it bars them from discharging student loans or home mortgages — often the two biggest obligations for consumers.
Considerable Obstacles
CBS News noted Warren's bill faces considerable obstacles on Capitol Hill, even before the uncertain outcome of this November's midterm elections.
“But Congress could be more receptive now because of renewed public attention on the crushing burden of student debt, including President Biden's move last month to cancel up to $20,000 in loans for some borrowers,” a spokesperson for Warren told CBS MoneyWatch.