Abstract

Excerpted From: Adji Ostin, Fresh Start or False Promise? Addressing Black Student Loan Debt Through Bankruptcy, 42 Emory Bankruptcy Developments Journal 505 (2026) (324 Footnotes) (Full Document)

Many sections within the Bankruptcy Code (the “Code”) were written to prevent abuse; however, in practice, these provisions have created significant barriers for “honest but unfortunate debtors” who seek a “fresh start.” While debtors incur student loans with a genuine intention to repay them, systemic inequities and restrictive bankruptcy regulations trap them in cycles of financial hardship. Debtors often spend years attempting to pay their debts before choosing bankruptcy as a means of relief. For decades, legislators have perpetuated a false narrative of debtors filing for bankruptcy as a strategy to enjoy a high-income lifestyle while avoiding their creditors. In reality, debtors file for bankruptcy out of necessity. For Black debtors, the barriers to accessing chapter 7 bankruptcy are generally burdensome when compared to their white counterparts, and at the intersection of these challenges lies student loan debt.

Currently, the bankruptcy system is failing to fulfill its intended purpose of providing a “fresh start” for the most vulnerable populations. Empirical research on the racial dynamics of bankruptcy access remains limited due to the absence of racial data collection by bankruptcy courts. Instead, scholars have relied on “creative empirical strategies, including surveys of bankruptcy professionals, online experiments, administrative data from specific metropolitan areas, and court records” to elicit racial disparities within bankruptcy. Despite these methodological challenges, research consistently reveals disparities. Black debtors file for bankruptcy at “twice the rate they appear in the general population,” and Black debtors “fare worse in the bankruptcy process than their white counterparts.” Consequently, whether a debtor receives a fresh start is influenced by race.

The national rise in student loan debt has contributed to the increase in bankruptcy filings, but student loan debtors face two barriers when attempting to receive relief: (1) the student loan discharge exception; and (2) the means test. Congress enacted these provisions to curb abuse of the bankruptcy system. Under the student loan discharge exception, student loans are presumptively non-dischargeable unless the debtor can show an “undue hardship,” which is a notoriously difficult standard for borrowers to meet. Even before debtors can attempt to demonstrate undue hardship, they must first navigate the means test.

The means test has become a significant mechanism that funnels debtors into chapter 13. Unlike chapter 7, which allows for the quick liquidation of non-exempt assets to discharge eligible debts, chapter 13 requires a structured repayment plan over a span of three to five years. The means test uses a rigid formula to force those whose income is above their state’s median income into chapter 13, presuming abuse based solely on their perceived ability to repay debts. For debtors whose obligations are primarily consumer debts, this presumption makes them ineligible for chapter 7 unless they pass the means test. This presumption raises the question of whether student loans should be classified as consumer or non-consumer debt. Congress has not clarified this question, leaving courts to grapple with this issue to the detriment of Black borrowers-- considering that Black borrowers tend to carry much larger student debt burdens than white debtors. Even when Black debtors’ income exceeds the median, it does not necessarily mean they have the capacity to repay, especially given the increasingly disproportionate weight of student loan obligations relative to income.

This Comment aims to highlight the racial disparities in the treatment of student loan debt within the bankruptcy system. Specifically, this Comment explores the lack of access to a meaningful chapter 7 discharge for Black debtors, focusing on: (1) the legislative history behind the student loan discharge exception and the means test; (2) why chapter 7 is the better chapter choice for Black debtors; and (3) the current approaches to the categorization of student loans as consumer or non-consumer debts for the purpose of the means test. To address these issues, this Comment proposes legislative reforms to categorize student loans as non-consumer debts, thereby enhancing access to chapter 7 for Black student loan borrowers. By examining these disparities and proposing reforms, this analysis seeks to advocate for changes that would make bankruptcy a more accessible and equitable solution for Black borrowers struggling under the weight of student loan debt.

[ . . . ]

The student loan crisis is less a function of the overall scale of student debt and more a consequence of the government’s “failure to utilize its existing mechanisms for ... debt cancellation.” It has been two decades since Congress introduced the means test and nearly four decades since the first provision restricting the discharge of student loans was enacted. Throughout this period, legislative reforms have been primarily driven by concerns over potential abuse by so-called “can pay” debtors, leading to significant amendments to the Code, particularly through BAPCPA. These creditor-friendly provisions have disproportionately hindered Black borrowers from accessing a fresh start.

Despite these constraints, the foundational goal of consumer bankruptcy remains to ensure that overburdened debtors have a genuine opportunity for a fresh start. By explicitly classifying student loans as non-consumer debts, greater access to chapter 7 bankruptcy would be facilitated for Black student loan borrowers, who face higher student loan burdens and are typically underserved by chapter 13’s restructuring plans. This reclassification would enable these debtors, who might otherwise fail to qualify for chapter 7, to obtain a fresh start through bankruptcy while preserving creditor protections.

Expanding access to chapter 7 bankruptcy for Black borrowers also addresses the broader financial hardships that disproportionately affect Black Americans. Student loan debt restricts borrowers’ ability to purchase homes, save for retirement, and build generational wealth. By alleviating one of the most significant financial burdens faced by Black debtors, greater access to chapter 7 relief would enhance economic mobility, allowing debtors to invest in long-term financial security--or, at the very least, allow debtors to stabilize their finances to meet their daily financial needs without the weight of insurmountable debt.