At Subcommittee Hearing, Democrats Call For Timely, Affordable Relief for Small Businesses and Working Families Through Bankruptcy Law Reforms

Washington, D.C. (July 15, 2025)—Today, Rep. Jamie Raskin, Ranking Member of the House Judiciary Committee, and Rep. Jerrold Nadler, Ranking Member of the Subcommittee on the Administrative State, Regulatory Reform, and Antitrust, led Subcommittee Democrats in a hearing examining reforms to bankruptcy law to provide access to timely, affordable relief for student loan borrowers, small businesses, and working families.

The hearing included testimony from: Michelle Harner, Bankruptcy Judge of the District of Maryland; Paul Black, Bankruptcy Judge of the Western District of Virginia; Douglas Baird, Professor of Law at the University of Chicago and Chair of the National Bankruptcy Conference; Melissa Jacoby, Professor of Law at the University of North Carolina at Chapel Hill; Edith Hotchkiss, Professor of Finance at Boston College; and Megan Murray, Attorney for Underwood Murray P.A. 

Subcommittee Democrats explained that extending the debt limits for Subchapter V and Chapter 13 bankruptcy is essential to provide access to timely, affordable relief for small businesses and working families. 

• Ranking Member Raskin said: “Across this country, small businesses and working families are shouldering debts that would have once been considered extraordinary but today reflect the cost of staying afloat. Although it remains a remedy of last resort, our bankruptcy system must be equipped to provide relief when economic pressures strain the margins of household and commercial stability. […] I am heartened by the bipartisan agreement that restores the $7.5 million debt limit for bankruptcy is both sensible and long overdue. This Committee should mark up the legislation and send it to the House floor.
   
• Rep. Zoe Lofgren emphasized how protecting small businesses and working families through bankruptcy legislation is a bipartisan effort: “I first worked on bankruptcy legislation in this committee room in 1974 when I was a staffer and that effort was arduous and very bipartisan, and I think bankruptcy law is one of those areas that does benefit from bipartisan efforts, and I’m encouraged that we are looking at some bipartisan efforts to make some tweaks to this bill. Based on all of your testimony and your comments, it seems to me that there is consensus on the cap on Chapter 13, and I’m hopeful that we can address that in a bipartisan way. It will help our constituents across the United States, and I think the members of the committee have made that clear. […] We can make progress on this and in the Constitution, it assigns us this role: Article 1, Section 8, Clause 4 gives to Congress the responsibility for uniform bankruptcy acts, and I’m looking forward to discharging that obligation.”
   
• Ranking Member Raskin asked all the witnesses a yes-or-no question if they think the Subchapter V debt limit should be restored to 7.5 million from the current 3 million: All the witnesses said yes.
   
• Rep. Chuy García said: “Bankruptcy, as you all are aware, is a very complex area of law, and Congress should address these issues in a nuanced way that protects the rights of creditors but doesn’t improperly favor them at the expense of working families, small businesses, or municipalities. And that’s why I strongly support bipartisan efforts to extend the debt limits of Subchapter V and Chapter 13 cases, which would provide much needed relief to small businesses and working families in financial distress.” 

Subcommittee Democrats made clear that bankrupt borrowers deserve a fresh start, not a lifetime sentence of student loan debt. 

• Subcommittee Ranking Member Nadler said: “Student loans are the only kind of unsecured debt that consumers cannot discharge in our current bankruptcy system. Although we generally imagine a young person who we can consider tackling the issue of student loan debt, this issue affects people of all ages and increasingly it’s a senior citizen with loans going back many decades who are shouldering this non-dischargeable debt.”
   
• Rep. Lou Correa explained that Democrats want to help relieve student loan debt: “43 million Americans owe $1.6 trillion in debt. Veterans, other Americans, older Americans. Many of our delinquent default, meaning many are going to fall out of the workforce. They’re going to work for cash; they’re just not going to be as productive as they could be. Would they have a fresh start? Currently under the undue hardship standard of the Brunner test followed by most courts, it’s almost impossible to discharge this debt. And that’s why I’m introducing legislation, The Student Loan Bankruptcy Improvement Act, that modifies the law to require only hardship, meaning eliminating the undue hardship [standard].”
   
• Rep. Becca Balint said: “We can’t forget that many personal bankruptcies can be prevented. Okay, we can talk about the law, but they can be prevented, and we can have a role in preventing it, but only if government is there to protect Americans from financial exploitation. That said, […]  I am deeply concerned that the recently passed Republican tax bill has taken a sledgehammer to many of the programs that help Americans before bankruptcy becomes their only option.”
   
• Rep. Hank Johnson said: “We have Americans holding about $1.8 trillion in student loan debt. That is almost half of the debt that was added to the federal debt by Republicans when they passed this Big Ugly Bill. […] The Big Ugly Bill has only made the problem worse. It reduces the number of repayment plan options, and it also eliminates grad plus loans, which help people finance higher education degrees and caps federal loans for graduate degrees. This will push more people into the private loan market with its predatory interest rates, and the Big Ugly Bill eliminates the deferment provisions for borrowers facing economic hardship. So, thanks to the Big Ugly Bill, if you fall behind on your bills because you lose your job, you can no longer defer your student loan payments.”
   
• Rep. García said: “I believe that excluding student loans from the bankruptcy code has unfairly benefited private student lenders and made life harder for millions of Americans, especially vulnerable borrowers like seniors, disabled veterans, and low-income individuals.”
   
• Ranking Member Raskin said: “We need to fix this. I hope my colleagues across the aisle will join us in restoring basic fairness to the bankruptcy system by putting student debt on the same footing as virtually every other kind of debt, all of which are dischargeable in bankruptcy.”