Student loan debt has traditionally been extremely difficult to discharge in bankruptcy. For years, student loan borrowers and advocates have been pushing for legislation to make this process easier. The Biden administration has made statements indicating they will make this process easier in the future, although it is unclear when or if this will ever happen.
It is not impossible to discharge student loan debt in bankruptcy. The bankruptcy code does allow for it, but the test to demonstrate the need for discharging student loan debt has been difficult for borrowers to prove. Unlike other consumer debts, to receive a discharge from their student loan debt, the borrower must prove that repaying these loans would put an undue hardship on them. Unfortunately, the definition of what qualifies as an “undue hardship” is found within the U.S. bankruptcy code, which means defining this standard has been left to individual courts. Certain jurisdictions have made the standard next to impossible to meet, while others have been somewhat more lenient. Regardless, no consistent standard has been set.
In order to prove an undue hardship, student loan borrowers must file an adversary proceeding within the bankruptcy case. The student loan servicer can fight the request, and the burden is placed on the borrower to prove. Some courts will grant a full discharge if the borrower is successful while other courts will only allow for a partial discharge. It can be time-consuming and many times fruitless to pursue, which is why so many borrowers choose to not even try to discharge their student loan debts.
The Biden Administration has recently made statements indicating that they hope to fix this problem and reform the process of discharging student loan debts. Reform could come in the form of the government choosing to not engage in the adversary legal proceeding fighting the discharge. Unfortunately, permanent reform itself can only come in the form of legislation passed by Congress.
Last year, a bipartisan effort was made in the Senate through the Fresh Start Through Bankruptcy Act, which would get rid of the undue hardship test for federal student loan borrowers who have been repaying their loans for the previous ten years. Unfortunately, the bill has stalled and has not moved forward since its creation. Even if it did move forward, the 10-year waiting period would keep many borrowers from relief.
Until this legislation moves forward, student loan reform advocates have argued that it is up to the administration to make the change. Unfortunately, even though the Biden administration has made statements alluding to wanting to reform the student loan debt discharge process, it has continued to appeal unfavorable rulings and fighting student loan discharge in adversarial bankruptcy proceedings. Advocates argue that the administration can make the change needed to provide relief for countless borrowers, but they must first stop the practice of disputing requests to discharge student loan debts.
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For borrowers who are struggling with student loan debt, relief options are available. Many student loan borrowers are unaware that they have rights and repayment options available to them, such as postponement of loan payments, reduction of payments or even a complete discharge of the debt. There are ways to file for bankruptcy with student loan debt. It is important you contact an experienced Miami bankruptcy attorney who can advise you of all your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.
