Find Relief From Student Loans Through Bankruptcy
For many people, the promise of a government-financed education entices them to take on large amounts of student loans, which they then struggle to repay afterward. The path to discharging these loans through bankruptcy is narrow, normally requiring a showing of “undue hardship” beyond normal eligibility standards.
Recent guidance from the federal government has sought to clarify the exact requirements for those seeking to alleviate their impossible financial burden through bankruptcy. At The Law Office of Donald L. Bell in Maryland, we help clients apply for bankruptcy protections.
When some people think of bankruptcy, they think of Chapter 7 bankruptcy, which discharges (or, erases) certain types of debt. Under normal circumstances, though, student loans are not eligible for discharge. However, a Chapter 13 bankruptcy can help you reorganize your debts, making repayment of your student loans more manageable. A Chapter 13 bankruptcy allows you to restructure your debt, helping you eliminate your debt without losing your assets. This allows you to find relief and keep what is important to you. For many, this includes their home.
Student Loans Are Difficult – But Not Impossible – To Erase
Additional test has been put in place, which debtors must pass in order for student loans to be eligible for discharge. The test, known as the Brunner Test, requires applicants to prove the following:
- Their income is insufficient to maintain a minimum standard of living while repaying their debt.
- Their financial situation is likely to remain the same for most of the repayment period.
- So far, they have made a good faith effort to try and pay off the loan.
Many people struggle to meet this test and, therefore, are unable to restructure or discharge this debt when they are in bankruptcy. Some efforts have been made to try and address this, such as the introduction of income-based repayment plans, loan forgiveness for those working in public employment and other flexible ways of repaying student loans. However, these options have been insufficient to address the issue of bankruptcy eligibility.
Current Efforts To Address The Undue Hardship Test
On November 17, 2022, the Department of Justice (DOJ) and the Department of Education (DOE) came out with new guidance for the interpretation of the undue hardship test that the bankruptcy courts have been applying. This would make the test focus on three factors:
- The debtor’s present ability to pay
- Their future ability to pay
- Their good faith efforts to manage their debt so far
This process will not override the final decision-making power of the bankruptcy court judges. But, it can make the process of applying for bankruptcy with student loans simpler, clearer and more accessible to more people who are struggling with their debts.
Answering Common Bankruptcy Questions
We know how complicated the subject of bankruptcy is, and we are here to answer any questions you may have about it. To help you get the information you need sooner, we have taken the time to answer some questions about student loans and bankruptcy, below.
What is the new law about discharging student loans through bankruptcy?
Under the new law, courts will consider factors such as the past, present and future financial circumstances of the borrower before consulting with the DOE and the DOJ. Both departments will use the factors that the court considers relevant to the inquiry before deciding whether to recommend a discharge to the bankruptcy judge. These departments will consider how well this system is working after one year to determine if it will continue.
Can I file for bankruptcy to discharge private student loans?
Under the right circumstances, it is possible to discharge private and federal loans through bankruptcy. For either type of loan that you may have, you will need to file an action called an “advisory hearing” and prove that there is undue hardship in your case. If you are not sure if this may apply to you, we can help you develop your case if there are grounds for dismissal.
Can I get student loans after filing for bankruptcy?
Every application for student loans is different, but in most situations, bankruptcy does not affect your eligibility to receive future student aid. Some situations, like when a student’s federal loans were not included in the bankruptcy and the student defaulted on them, can impact their eligibility going forward.
What happens after my loans are discharged?
Once your loans are discharged, you will no longer have any obligation to pay them. You will also receive reimbursement for the payments you made either voluntarily or through collections, and the discharge will also delete any negative credit history associated with the loan.
Call A Maryland Bankruptcy Attorney To Get Help With Your Finances
Insurmountable debt can feel impossible to overcome. However, bankruptcy provides a pathway that you can use to get out of it. Even if your debt is mostly student loans, there is still a way forward. We have helped many people restructure their debt through Chapter 13 bankruptcy so that they have been able to manageably pay off their debt without losing their assets. Call The Law Office of Donald L. Bell in Greenbelt by dialing 240-624-0748 or by messaging us online here.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.