The Biden administration has created new pathways for borrowers struggling to pay their federal student loans. These measures are giving cautious optimism to critics who say that financial relief is not available for those struggling with student loan debt.
The Departments of Justice and Education made an announcement regarding a new process that would allow bankruptcy borrowers to discharge their federal student loan debts. These departments stated this move will hopefully reduce what they call “unnecessarily burdensome and time-consuming” investigations.
This move is a significant change from the federal government’s previous stance in student loan discharges. The announcement also comes at a time when the White House’s current plan to offer widespread student loan forgiveness is at a standstill due to legal challenges.
Most U.S. bankruptcy courts operate under the undue hardship test when determining whether a borrower should have his or her student loans discharged during a bankruptcy case. This test was established in a U.S. Court of Appeals case, Brunner v. New York State Higher Education Services Corp., in 1987. This test is also often referred to as the “Brunner test.” It involves the filer showing that he or she has the inability to maintain a minimal standard of living if forced to repay his or her student loan debts. The problem is the bankruptcy code does not define what qualifies as an “undue hardship,” which has resulted in different bankruptcy courts treating the test differently.
The undue hardship test has resulted in a low number of bankruptcy filers being able to receive a successful discharge of his or her student loans. In fact, fewer than 0.1 percent of all debtors even try to get a discharge of their student loans.
Under the new policy presented by the administration, bankruptcy filers who wish to erase their federal student loan debt will need to submit a 15-page attestation form which will be processed and analyzed by the Department of Education and Department of Justice.
The government attorneys who will review these attestation forms are being instructed to use set standards for each submission when determining whether the borrower is facing undue hardship in being forced to continue paying his or her student loans. If a total discharge is not granted, the departments will consider at least offering a partial discharge of the debt.
The hope is that this new process will make it easier for the government to identify cases where the borrower should receive a discharge of his or her student loan debt. It is also hoped that borrowers will receive a more uniform standard when applying for discharge of this debt. Even with this new policy, hurdles still exist for borrowers seeking this type of bankruptcy relief.
For example, borrowers still need to file a separate lawsuit within an already existing bankruptcy case to acquire this relief. It is also unclear at this point how bankruptcy judges will respond to this form.
This new policy is a step in the right direction, but it does not fix all of the problems borrowers face in the bankruptcy process. Student loan advocates argue that a legislative approach is the best way for these problems to be fixed.
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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.
