Student loan debt is a large burden for many South Florida residents. Even after earning a prestigious degree, some student loan borrowers struggle to keep up with their repayment obligations. Recently, a bill was introduced that may provide some relief for student loan borrowers.
Expanding bankruptcy laws
Current bankruptcy laws do not provide relief for most student loan debts. That means that a person who files for bankruptcy could have their medical, credit card, private loan and other debts forgiven but still be obligated to make student loan payments. A new bill introduced by Senator Elizabeth Warren and Representative Jerrold Nadler aims to change that.
Can Student Loans Be Discharged in Bankruptcy?
In some cases, yes. Although student loans are generally treated differently from most unsecured debts, borrowers may still be able to discharge all or part of their student loan debt through bankruptcy if they can demonstrate “undue hardship.”
This process usually requires filing a separate legal action within the bankruptcy case called an adversary proceeding. The court will review factors such as:
- Your current income and expenses
- Your ability to maintain a minimal standard of living
- Whether your financial hardship is likely to continue
- Good-faith efforts to repay the loans
Federal courts often apply the Brunner test when evaluating undue hardship claims. While obtaining a discharge can be challenging, recent policy changes have made the process more accessible for some borrowers.
Other options besides bankruptcy
It’s possible that there could be some other student loan relief options that do not require a debtor to file for bankruptcy. Student loan debt collectors are currently under orders by the Department of Education not to pursue any collections activities. Interest accrual has also been suspended on student loan debt, and there is talk of possible relief for student loans in a new stimulus package.
Is bankruptcy a good option for student loan debt?
If student loan debt becomes forgivable in bankruptcy, a debtor will still have to make a decision about whether bankruptcy is a smart option for them. While bankruptcy may provide the most relief from debt, its affect on creditworthiness should be considered also. An experienced attorney may help a debtor understand their options.
