Discharging Student Loans in Bankruptcy Made Easier by New Released Guideline: Check it Here!

 It is Now Easier to Discharge Student Loans in Bankruptcy!

The Biden Administration’s new guidelines on federal student loans in bankruptcy have brought some relief to the countless Americans who are struggling with student loan debt. As of November 17, 2022, the Department of Justice is now allowed to recommend to the Bankruptcy Court that a debtor be granted a partial or full discharge of their student loans if they meet certain criteria.

Student Loans in Bankruptcy
New Guidelines, an easier way to discharge student loans in bankruptcy. (PHOTO: Indianapolis Bankruptcy Attorneys – Sawin & Shea)

What Includes in the New Guideline?

For many years, student loans were difficult to discharge in bankruptcy, even for those who were facing severe financial hardship. Unlike other types of consumer debt, student loans require a heightened showing of “undue hardship” to be discharged. This made it almost impossible for the majority of debtors to eliminate their student loans in bankruptcy, with a success rate of only 0.1%.

The new guidelines could potentially change this. A discharge of federal student loans may be granted to a debtor who can prove their incapability to repay the loans, with a high probability of the inability persisting in the future, and who has shown good faith in their past efforts to repay the loan. The Department of Justice will consider each debtor’s credentials for discharge.

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According to Levitt & Slafkes, while the effectiveness of the new guidelines remains to be seen, the move towards a more consistent, clearer, and fairer process for discharging student loans in bankruptcy is a welcome development. The burden of student loan debt has been a major issue for many Americans for decades, and the COVID-19 pandemic has only exacerbated the problem. The federal government has already taken steps to ease the financial burden of student loans during the pandemic, but many borrowers still struggle with unaffordable monthly payments.

It’s important to note that only federal student loans are covered by the new guidelines. Private student loans, which make up a significant portion of overall student loan debt, are not subject to the same rules. However, the new guidelines could set a precedent for future changes in bankruptcy law that could benefit private student loan borrowers as well.

Overall, the Biden Administration’s new guidelines on federal student loans in bankruptcy are a step in the right direction toward making the process more accessible and fair for those struggling with student loan debt. While it remains to be seen how effective the guidelines will be in practice, they offer some hope to the millions of Americans who are burdened by student loan debt.

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