New Hope for Student Loan Discharges in Bankruptcy
I just read the guidelines written by the Justice Department and the Department of Education regarding the discharge of student loans under bankruptcy.
What does this mean for people with Federal student loans they cannot afford pay?
It means that they may get the Federal student loans discharged in part in full through bankruptcy without having to live in poverty from the time they received the loan until their bankruptcy filing.
First, in order to get a student loan discharge, a “Debtor” or the person who owes money to someone and has filed bankruptcy must commence an adversarial proceeding under the bankruptcy in addition to filing a bankruptcy petition.
A personal Chapter 7 Bankruptcies usually is what is called a “No Asset” filing in that there are no assets that the “Trustee” can sell to pay unsecured creditors. In those cases, a Debtor must have completed a “Means Test” document which looks at the Debtor’s income and subtracts out expenses based upon the IRS National and Local Standards to determine if there is any of Debtor’s income left over to pay those unsecured creditors. If the income does not exceed the total of those standards, even of the Debtor is not paying some of those expenses, the Debtor qualifies to file as a No Asset bankruptcy.
Under the old rules, the bar to get student loans discharged in bankruptcy was nearly impossible. Congress wanted a high bar to discharge Federal student loans since the taxpayer would foot the bill for unpaid loans, these new guidelines lower that bar somewhat.
Also remember that this only applies to Federal student loans. If you consolidated into a private loan or borrowed money through private or state funds, this would not apply to those types of loans.
If you have student loans and are thinking about filing bankruptcy contact an attorney to discuss these new guidelines and see if you qualify. If you live in New York’s Nassau or Suffolk Counties, give my firm a call and see if you may qualify for not only a discharge of unsecured debt, but your Federal Student Loans as well.