In 1997, a National Commission on Bankruptcy Reform recommended hundreds of changes to the Bankruptcy Code to Congress. The objective of the group was to modify the code to give relief to debtors who truly need it, while preventing the filing by those who may not really require relief from debts and allowing creditors to receive compensation from individuals who are able repay.
One of the recommendations made by the Commission was a change in the Bankruptcy Code which would have allowed student loans to be dischargeable in bankruptcy. The Commission argued that many filers are the victims of questionable schools and are saddled with student loan debt that is not accompanied by any valuable education. This recommendation prompted opposition from schools and lenders, who warned that such a change could result in students declaring bankruptcy immediately upon graduation, wiping out student loan debt and eliminating their obligation to repay funds lent in good faith.
This change was not ultimately adopted in viable legislation proposing changes to the Bankruptcy Code. However, currently two bills that would modify the Bankruptcy Code are being considered by the Congress. The House measure (H.R. 3150), championed by Representative George Gekas (R-PA), would establish a policy of means-testing in bankruptcy filing, and would require taxpayers to pay by debts according to their ability to do so, based on income. The Senate bill (S. 1301), sponsored by Senator Charles Grassley (R-IA), makes changes that affect the legal recourse of both debtors and creditors in the process of filing for bankruptcy.
It is unclear what the prospects are for final enactment of bankruptcy legislation. President Clinton has issued a veto threat on the House measure, and consideration of the Senate measure in that chamber could be slowed or precluded by other legislative business.