Biden Announces Huge Changes on Bankruptcy for Student Loans
In the past, discharging student loans was an almost impossible hurdle in bankruptcy. The Department of Justice vigorously fought against lawsuits that targeted discharging these types of debts.
But on November 17, 2022, President Biden announced a significant change in how student loans will be treated. The goal is to make the process more consistent and fair. The Department of Justice attorneys will now evaluate each case against certain criteria to determine if a full or partial discharge is possible. The ultimate decision will still rest with the bankruptcy Judge.
We are excited about the prospect that this new announcement will allow us to help people escape their crushing student loan debt. Let’s discuss some of the most important topics:
- What You Need to Know About Discharging Student Loans in Bankruptcy
- The Debt Discharge Process
- Criteria to Qualify for Student Debt Wipe-off
If you want to eliminate your debt, our Sunset Hills bankruptcy attorney is here to help! Call our law office today to learn more!
What You Need to Know About Discharging Student Loans in Bankruptcy
Here are the five things you need to note:
- This guidance only applies to federal student loans.
- You still need to file for bankruptcy to discharge your loans.
- You must file a lawsuit against the Education Department in bankruptcy.
- You have to complete a borrower-attestation form with your request.
- There are criteria the Justice Department attorneys will consider before recommending the discharge of your debts.
The Debt Discharge Process
In summary, here’s what happens after you submit all the relevant paperwork:
- The Justice Department, with the help of the Department of Education, reviews the available information
- They will look at the factors relevant to your undue-hardship inquiry
- Based on that assessment, they will determine whether to recommend that the bankruptcy judge discharge your debts.
Note that the Justice Department attorneys will only make the recommendations. Ultimately, the bankruptcy judge decides whether your debts can be discharged. However, this guideline does provide a clearer and fairer process for evaluating student debt.
Criteria to Qualify for Student Debt Wipe-off
The Justice Department provided a new process for student loan bankruptcy discharge cases. Before the Education and Justice departments recommend discharge, they will consider the following criteria:
Good Faith Efforts
In determining what courts call the “good faith” standard, the Department will focus on objective criteria reflecting your reasonable efforts to earn income, manage expenses, and repay the loan. The Department attorney will consider, for example, whether the debtor contacted the Department of Education or their loan servicer regarding payment options for their loan.
Current Ability to Pay Student Loans
Using existing standards developed by the IRS and the information you provide, the Justice Department attorney will calculate your expenses and compare those to your income. If the expenses equal or exceed your income, the Department will determine that the debtor lacks a present ability to pay.
Future Ability to Pay Debts
The Department will then assess whether your inability to pay will persist in the future. The Department attorney will presume your financial circumstances are not likely to change if certain factors are present. These factors include
- Retirement age,
- Disability or chronic injury,
- Protracted unemployment history,
- Lack of degree, or
- Extended repayment status.
Where such factors are not present, the Department attorney will assess the facts showing whether your current inability to pay is likely to persist.
Find a Student Loan Attorney in Paducah Near You!
If you find yourself in deep debt from your student loans, you may be hesitant to hire an attorney. After all, it’s another expense on top of your already enormous financial obligations. However, the costs of not hiring an attorney can be greater than the savings from skipping the attorney fees. If you cannot successfully file your petition, you’ll still be stuck with your student loan debt.
Don’t let that happen to you. If you live in Kentucky, our experienced Paducah bankruptcy attorney at Farmer & Wright, PLLC, can help you get a fresh start and experience relief from financial burdens.
Call our Paducah law firm today if you’re ready to take the first step at a secure financial future!