Professor Jacoby Calls for Major Bankruptcy Reforms Before Congress

UNC School of Law Professor Melissa Jacoby brought her nationally recognized expertise in bankruptcy and consumer finance law to Capitol Hill yesterday, testifying before the House Judiciary Subcommittee on the Administrative State, Regulatory Reform, and Antitrust about urgent reforms needed in America’s bankruptcy system. 

The Graham Kenan Distinguished Professor of Law, Emerita delivered compelling testimony on two critical issues affecting millions of Americans: the broken student loan discharge system and the need to restore debt limits for small business reorganizations. 

“This section of the bankruptcy code is indeed broken, and none of the members of this esteemed subcommittee would write it this way if you were to do it today,” Jacoby told lawmakers about the current student loan discharge provisions. She explained that the current “undue hardship” standard has made student loan discharge nearly impossible, noting that there used to be three paths to relief from student loans but now there’s just one and it doesn’t work well. 

Her testimony drew on extensive research and practical experience, including her work in the 1990s with former Representative Caldwell Butler, a Virginia Republican who advocated for full repeal of special treatment for student loans in bankruptcy when the law was more forgiving than it is today. 

During the hearing, Jacoby joined all expert witnesses in unanimous support for restoring the $7.5 million debt limit for Subchapter V small business cases, which had temporarily been raised during the pandemic but expired in 2024. The complete agreement among witnesses revealed the strength of the evidence-based case for reform. 

Professor Jacoby also addressed emerging challenges in bankruptcy law, including the treatment of genetic information in proceedings like the 23andMe bankruptcy. She stressed the need for clear protections that apply both inside and outside of bankruptcy contexts. 

When Ranking Member Jamie Raskin asked directly whether student loan debt should be dischargeable, Jacoby responded that “this section of the bankruptcy code should be at least reformed, if not repealed,” advocating for a menu of “narrowly tailored and sensible middle ground proposals” that could gain bipartisan support. 

Jacoby’s congressional testimony follows the recent publication of her book “Unjust Debts: How Our Bankruptcy System Makes America More Unequal,” which received a starred review from Publishers Weekly and was named one of the Financial Times’ best summer economics books for 2024. From 2021-2024, she was appointed by Chief Justice John Roberts to assist the Federal Judicial Center on educational programming for bankruptcy judges.