Available at: https://scholarlycommons.law.emory.edu/ebdj/vol42/iss3/7
The means test and student loan discharge exception in the Bankruptcy Code were enacted to prevent abuse of the bankruptcy system. However, these provisions have disproportionately denied Black Americans the fresh start bankruptcy intends to provide. Research consistently demonstrates that Black debtors fare worse in chapter 13 repayment plans than in chapter 7 liquidations, yet they file for chapter 13 at twice the rate of their white counterparts. One contributing factor to this disparity is the means test, which effectively forces many Black Americans into chapter 13 by categorizing their substantial student loan burdens as primarily consumer debt, thereby restricting access to chapter 7 relief. Current judicial tests, such as the profit motive test, have several gaps in their analysis and fail to account for students who pursue higher education for altruistic purposes, further compounding disparities in how student loan debt is classified. This Comment argues that student loans should be classified as nonconsumer debt within the Bankruptcy Code, up to the cost of attendance as defined by the Higher Education Act. This classification would resolve inconsistent judicial interpretations of consumer debt while balancing debtor financial relief with creditor interests. This approach also better aligns with the foundational goals of the Bankruptcy Code, ensuring that overburdened debtors—particularly Black borrowers disproportionately affected by student debt—have a meaningful opportunity for economic mobility and financial stability.
Summary:
Adji Ostin's thoughtful Comment, Fresh Start or False Promise? Addressing Black Student Loan Debt Through Bankruptcy, examines how two pillars of modern consumer bankruptcy—the student loan discharge exception of § 523(a)(8) and the Chapter 7 means test—combine to produce unintended and disproportionate consequences for Black Americans.
The article begins by reviewing the well-documented racial disparities in student borrowing. Black borrowers generally incur larger student loan balances, receive less family financial assistance, experience higher unemployment and lower wages after graduation, and remain in repayment far longer than similarly situated white borrowers. These realities leave many Black borrowers with crushing educational debt long before bankruptcy ever becomes a consideration.
The author then explains that these borrowers encounter two separate bankruptcy barriers.
First, student loans generally remain nondischargeable absent proof of "undue hardship" under § 523(a)(8), a standard that has historically been interpreted very narrowly. While the Department of Justice's 2022 guidance has made obtaining student loan discharges substantially easier in appropriate cases, the article notes that many debtors never even attempt to bring an adversary proceeding because they assume success is impossible.
Second—and more uniquely—the article focuses on the means test.
Because the means test applies only when a debtor's obligations are "primarily consumer debts," the classification of student loans can determine whether an above-median debtor even has access to Chapter 7. Courts have reached inconsistent conclusions regarding whether student loans should be considered consumer or non-consumer debt, often relying upon various versions of the "profit motive" test. The author argues that this approach produces inconsistent results and unfairly disadvantages borrowers who pursued education for public service, teaching, social work, ministry, or other occupations motivated by something other than maximizing income.
To address these problems, the Comment proposes a legislative solution: classify educational loans as non-consumer debt up to the federally defined cost of attendance under the Higher Education Act. Doing so would remove many debtors from the means test altogether, provide greater uniformity, and make Chapter 7 available to borrowers who presently find themselves steered into Chapter 13 repayment plans that frequently fail.
Commentary
This article deserves careful attention, both for its doctrinal analysis and for raising an issue that bankruptcy practitioners probably do not discuss often enough.
Whether one agrees entirely with its proposed solution or not, the underlying statistics regarding race, student borrowing, and bankruptcy outcomes are difficult to ignore. The bankruptcy system is intended to provide a fresh start, and if particular groups consistently experience worse outcomes, that deserves careful examination rather than dismissal.
I am particularly intrigued by the author's proposal to classify student loans as non-consumer debt for purposes of the means test.
Current law leaves courts attempting to distinguish between consumer and non-consumer educational debt using tests that have produced inconsistent and sometimes difficult-to-reconcile decisions. The proposed bright-line rule tied to the federally defined cost of attendance certainly has the virtue of predictability. Whether Congress is likely to enact such a change is, unfortunately, another question entirely. Given Congress's decades-long reluctance to liberalize either the means test or student loan discharge provisions, legislative reform appears unlikely in the near future.
That said, the article also reinforces why bankruptcy attorneys should not overlook existing tools that are available today.
The Department of Justice's student loan guidance has significantly changed the landscape for undue hardship litigation. Likewise, debt classification remains an important issue in means test litigation for debtors with substantial educational borrowing. Both deserve careful consideration in appropriate cases.
The article also serves as a reminder that bankruptcy law does not operate in a vacuum. Questions about race, educational opportunity, access to credit, attorney counseling, chapter selection, and economic mobility all intersect with consumer bankruptcy practice in ways that deserve thoughtful discussion supported by empirical evidence rather than assumptions.
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