November 27, 2023
There’s a new way a growing number of student loan borrowers are getting rid of their student debt.
Now –I’m not saying this way is for everyone but the federal government is on board with it and in fact – recently made it easier to get that debt off your back.
Turns out – more and more borrowers are just filing for bankruptcy.
See – I told you it wasn’t for everyone. But you may want to listen to the new rules.
Last year – the Biden Administration made it easier for student borrowers to apply for bankruptcy to get rid of the debt if the borrower meets certain economic hardship criteria. Now – that’s dramatically different from the old bankruptcy rules that were really intrusive and made it really hard and almost impossible to eliminate student debt even if you were able to successfully file for bankruptcy. Student loans – for years have been treated differently than other types of debt in bankruptcy courts. Mostly because back in the 1970s lawmakers were afraid that students would rack up student loan debt and then immediately file for bankruptcy when they graduated. So Congress added a stipulation that student loan borrowers had to wait at least five years after they began repayment to file for bankruptcy. But then in the 90s, the waiting period was upped to seven years. And the rules changed again almost a decade later, requiring that people with federal or private student loans prove that their debt poses an “undue hardship” to get rid of it. But Congress, however, never spelled out what that “undue hardship” meant so the Biden Administration defined it last year.
Now – there aren’t a lot of people who are taking advantage of these new rules yet — but it’s more borrowers have applied than in previous years and the numbers are growing. The Justice Department says in the first 10 months since the new streamlined bankruptcy process was rolled out 632 people filed and in 99% of cases where courts have entered orders or judgments agreeing to the bankruptcy, the government recommended, and the court agreed to, a full discharge or partial discharge of the student loan.
So – how do you qualify for your student loan debt to be wiped out through these new bankruptcy rules? You have to meet three criteria.
One – you have to prove you currently lack the ability to repay the loan;
Two – you have to prove your inability to pay the loan is likely to persist in the future;
And three—you have to prove you acted in good faith in the past in attempting to repay the loan.
Now – this isn’t a magic wand – if you want to go down this bankruptcy road – there are courts and judges, the Departments of Justice and Education get involved….plus there are some serious consequences to filing for bankruptcy. So you really need to think it over. But it is a new option out there.
Read more about the new streamlined bankruptcy process here.
Read more from Dept. of Justice on the bankruptcy process here.
