The Recent Law Change About Student Loans and Bankruptcy
Many former students found that filing for bankruptcy did not allow their student loans to be dismissed. Most didn’t even try because discharging student loans was a complex and time-consuming process, showing little hope of success. The U.S. Department of Education recently announced modifications to the debt forgiveness process, promising to significantly improve the situation.
The Trouble with Student Loan Forgiveness
In the past, some people didn’t ask for their student loans to be forgiven while undergoing bankruptcy proceedings for several reasons. Consider some reasons below:
- The belief that there was a low probability of success in seeking a student loan discharge
- The mistaken belief that student loans were ineligible for cancelation
- Concern about the cost and intrusiveness of the legal process
What Changed Regarding Student Loans and Bankruptcy?
The Department of Education revealed the procedure change in a letter to all higher education institutions and guarantors that provide federal student loans (termed “holders”). The letter offered uniform guidelines for holders to write off student debt more easily while avoiding the “costly, time-consuming” process of formal legal discovery. Prior to these changes, each bankruptcy court had its own method of determining if a student loan caused “undue hardship” to the borrower and whether the debt should be discharged.
The letter promoted three goals:
- Make expectations clear. The Department of Education issued guidelines to help attorneys know what to do when representing borrowers who cannot repay their student loans. The guidelines are also intended to help borrowers understand the procedure.
- Simplify the process. The agency issued a simplified “attestation” that the borrower can fill out to streamline the fact-gathering process. The agency also encourages using documents that the holder or bankruptcy court possesses to speed up the process without needing formal discovery.
- Discharge more student loans that validly cause “undue hardship.” Based on the newly amended process, the idea is to increase the number of cases where the loan holder can see from the facts provided that continuing to demand payment will impose undue hardship on the borrower. The holder would then recommend to the court that the borrower’s student loans be discharged rather than both sides spending time and money to continue the legal process.
With the help of a skilled bankruptcy lawyer, changes in the law could significantly reduce the time it takes to complete the legal action necessary to get a student loan discharged – if repaying the loan would cause undue hardship.
Under the New Guidelines, How Do I Prove Undue Hardship?
While it is always best to consult with a qualified Phoenix bankruptcy attorney, the fundamental points required under the new guidance provided by the Department of Education consist of:
- Proving you cannot maintain “a minimal standard of living” while making student loan payments
- Proving continued inability to pay based on your expected future life circumstances
- Proving prior efforts to pay showing you acted in “good faith.”
Why the Change in Law?
The new guidance came about through “careful legal analysis, decades of bankruptcy litigation experience,” and the belief that ” more borrowers are eligible for an undue hardship discharge in bankruptcy” than the number of borrowers who apply.
Get Past Undue Debt Hardships with Hilltop Law Firm
At Hilltop Law Firm, we understand that financial stress can be unbearable whether you are struggling with student debt or other debts and expenses. We provide fast, friendly service and treat our clients like family – because we genuinely care. Call our Phoenix bankruptcy law firm for a free consultation regarding your case at (602) 466-9631. With a combination of over ten years of experience in banking and law, Founder Cy Hainey will work with you to create a tailored plan for a fresh financial start.