Quick overview: what H.R.423 would change
The Private Student Loan Bankruptcy Fairness Act (H.R.423), introduced January 15, 2025, would change federal bankruptcy law so that many private student loans become dischargeable in bankruptcy without a borrower first proving the heightened "undue hardship" standard. This is a targeted statutory change focused on private student loans and was reintroduced by Representatives including Steve Cohen, Danny K. Davis, and Eric Swalwell.
Why it matters: under current law (11 U.S.C. §523(a)(8)), student loans—both many federal and most private loans—are generally excepted from discharge unless a borrower demonstrates undue hardship through an adversary proceeding. H.R.423 would remove barriers that have made private student loans functionally nondischargeable for most debtors.
What the bill actually does (legal text and timing)
Key statutory change: H.R.423 amends Title 11 of the U.S. Code to modify the exceptions to discharge in section 523(a)(8). The bill’s congressional summary states it "allows private student loans to be discharged in bankruptcy regardless of whether a debtor demonstrates undue hardship." The full bill text and official summary are published on Congress.gov.
Effective date and application: the bill, as drafted, takes effect on the date of enactment and would apply only to bankruptcy cases commenced on or after that date—so any change would not be retroactive to older bankruptcy cases. That timing provision is in the statute’s text.
Legislative status (as of this writing): the bill was introduced and referred to the House Judiciary Committee; it remains a piece of active legislation until (and unless) it passes both chambers and is signed into law. Consult Congress.gov for live status updates.
Practical impacts for California borrowers — what to expect
1. Dischargeability and filing strategy
If H.R.423 becomes law as written, private student loans would be dischargeable for debtors who file bankruptcy after enactment without having to win a separate "undue hardship" adversary proceeding. That could simplify the process for many debtors and reduce legal costs and procedural barriers for private-loan relief. However, until the bill becomes law, the existing rules (and any DOJ/ED guidance about federal loans) still apply.
2. What this means for co-signers
Important: a bankruptcy discharge relieves the filing debtor’s personal obligation but does not automatically protect co-signers or guarantors. Creditors can—and typically will—pursue a co-signer for repayment unless the co-signer also files or the loan contract or state law provides otherwise. In Chapter 13, co-debtor stays can offer temporary protection under certain conditions, but that is not the same as erasing co-signer liability. California borrowers with co-signers should plan and communicate with co-signers before filing.
3. Servicing, auto-defaults, and co-signer releases
Because many private student loans are co-signed, servicer practices (including so-called "auto-default" clauses that may trigger default on co-signer death or bankruptcy) will remain an important practical risk even if private loans become dischargeable. The Consumer Financial Protection Bureau has documented widespread problems with co-signer release denials and auto-defaults in private student lending—issues California borrowers should monitor with their servicers.
4. Local (California) considerations
- Exemptions and means test: bankruptcy outcomes (what you keep, how much you must pay in a plan) still depend on Chapter choice (7 vs. 13), California or federal exemption selection, and the means test; H.R.423 would only change dischargeability of private student loans, not exemption rules. Consult a California bankruptcy attorney to evaluate exemptions and plan options.
- Timing for Los Angeles and other counties: if the law changes, the effective-date clause limits the change to cases filed after enactment—timing matters for planning.
Potential second-order effects & what to watch
Credit markets and lending practices: advocates argue that allowing discharge would restore parity between private student loans and other unsecured consumer credit and could incentivize lenders to underwrite more carefully; opponents predict lenders may tighten underwriting or raise rates for private student loans. These are reasonable policy predictions, but the magnitude and timing of any market response depend on lender behavior and regulatory follow-ups.
Bankruptcy caseloads and access to counsel: analysts have suggested that easing dischargeability could lead to a temporary uptick in filings from borrowers who previously avoided bankruptcy because private loans were essentially nondischargeable; courts, trustees, and legal-aid providers may see increased demand in that scenario. Advocates and consumer groups have urged clearer administrative rules to avoid inconsistent outcomes.
Practical next steps for California borrowers
- Do not assume change yet: H.R.423 must become law before it alters any case. Check Congress.gov for live status or consult an attorney to confirm current rules.
- Review any co-signer arrangements: ask your servicer about co-signer release eligibility and the exact contract language; the CFPB has consumer advisories and sample letters to request co-signer release.
- If you’re considering bankruptcy now, consult a qualified California bankruptcy attorney about whether to include private loans in your petition or delay filing based on legislative prospects and your personal situation.
- Guard against scams: be wary of firms offering guaranteed automated discharges—legislative change does not immunize borrowers from scams or improper filings.
Need help? If you live in Los Angeles County, local legal aid organizations and bankruptcy clinics can offer free or low-cost guidance on student loans and filing strategy; consult this site’s local resources page for contacts and court filing procedures.
Bottom line: H.R.423 would be a significant statutory change for private student loan borrowers if enacted: it would make many private loans dischargeable in bankruptcy for cases filed after enactment, potentially simplifying relief for affected Californians, but it would not erase co-signer risk or replace careful case-by-case planning. Stay informed and consult counsel before making filing decisions.