Student loans, both federal and private, are traditionally, until now, not dischargeable in bankruptcy. To discharge them, borrowers must show that they have an undue hardship, which is a difficult and vague standard that varies by jurisdiction. They must also initiate a lawsuit against their lenders within the bankruptcy case. Very few borrowers succeed in getting a full or partial discharge of their student loans.
However, there are some changes being made to make it easier to have debt discharged through bankruptcy. The Biden administration has made it easier to have federal student loan debt discharged in bankruptcy by releasing new guidance that aims to simplify the burdensome process of showing undue hardship and make it easier for government lawyers to recommend to the court that the debt be discharged.
The New Guidance
Guidance will enhance consistency and equity in the handling of these cases. In accordance with existing case law and Education policy, the Guidance advises Department attorneys to stipulate to the facts demonstrating that a debt would impose undue hardship and recommend to the court that a debtor’s student loan be discharged if three conditions are satisfied:
- The debtor presently lacks the ability to repay the loan
- The debtor’s inability to pay the loan is likely to persist in the future
- The debtor has acted in good faith in the past in attempting to repay the loan
The IRS Standards are a useful guide to assess your expenses for purposes of the “minimal standard of living” inquiry. The use of these standards will ensure more consistent and equitable treatment of debtors seeking discharge. The IRS has established and updated the IRS Standards to determine appropriate collection actions where taxpayers have outstanding unpaid tax obligations. The IRS Standards evaluate what expenses are “necessary to provide for a taxpayer’s health and welfare
Allowance of Expenses in National Standard Categories includes costs associated with:
- Food
- Housekeeping
- Apparel
- Personal Care & Services
Allowance of Expenses in Local Standards Categories includes costs associated with:
- Housing
- Utilities
- Transportation
Allowance of Other Necessary Expenses includes costs associated with:
- Alimony
- Child Support
- Baby-sitting
- Day Care
- Nursery and Preschool costs
It will be important to consult with an experienced Bankruptcy Attorney to understand how this will affect your specific situation.
Using the expense and income information your attorney will be able to determine whether you have the income with which to make student loan payments. If your allowable expenses exceed your income, the minimal standard of living requirement is satisfied and you may be eligible for a student loan discharge.
According to the Guidance Provided
If the debtor has sufficient discretionary income to make full student loan payments as required under their loan agreement, the debtor has not satisfied the test for undue hardship. Where a debtor’s income allows for payment toward the student loan debt but in an amount insufficient to cover the required monthly student loan payment, the Department attorney should consider the potential for a partial discharge.
ContactThe Law Offices of John E. Mufson
With payments and collections of student loan payments restarting getting help and advice from our experienced attorneys Alabama and Mississippi bankruptcy attorneys will relieve the stress of having debt you cannot pay. This is a game changer for people with student debt. For an absolutely free consultation contact our offices at 561-272-1003 or email us through our website.
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