Starting November 17, 2022, student loans are much more easily discharged in bankruptcy. For the first time in a generation, many people who qualify for chapter 7 can now also get rid of their student loans just like they can get rid of their credit cards, medical debts, and many other debts.
The Justice Department has issued guidance that dramatically changed how the government views treatment of student loans in the bankruptcy process. The government will now recommend that student loans will be discharged if (1) you can’t currently repay the student loans; (2) you probably won’t be able to pay the student loans in the future; and (3) you acted in good faith to try to pay the student loans.
It is important to understand that even under the new guidelines, student loan forgiveness is not automatic. Just filing a bankruptcy is not enough to get rid of the student loans. Rather, to make the student loans dischargeable, we need to file additional documents and bring the case to a Federal Bankruptcy Judge. The documents need to be prepared carefully, and they have some technical requirements. They will then be reviewed by the Justice Department and taken to the Court. The judge can then determine that the debt can be discharged. In fact, this part of the process is not all that different the previous process. What has changed is that under the new guidance, the judge is much more likely to grant the discharge.
I urge you not to try this without an attorney. Filing a bankruptcy is complicated, and this adds another substantial layer of complexity to a bankruptcy case. If you do this incorrectly, there could be very serious problems, so you should only attempt this will a skilled attorney who has experience representing consumers in bankruptcy proceedings.
Since 2005, it had been almost impossible for Americans to discharge student loans in bankruptcy. Most people thought this might never change and that student loans would never be forgivable in bankruptcy. We have to change our thinking. The rules have changed. Student loans are now much more easily forgivable in a bankruptcy, but there is no guarantee that this will not change again in the future. If you have student loans that you want to get rid of in a bankruptcy, you should discuss this with a bankruptcy attorney right away.
Steve is a client who came to us with credit card debts. He also had a judgment against him, where his wages were being garnished. He had a house, but it did not have a lot of equity. We were able to do a Chapter 7 bankruptcy, and he was freed of the debt without losing any property. Now he can start rebuilding his finances.
Michael & Maria had been doing fine, until Michael was off work for 8 months. They fell behind on their mortgage, and by the time Michael got back to work, they were in foreclosure. We filed a Chapter 13 bankruptcy, which stopped the foreclosure, and Michael and Maria have 5 years to catch up.
Kathleen owned a small clothing shop. When the economy slumped, her store suffered, and eventually it had to close. Not only did she have debts from the business (including an SBA loan), but she also used credit cards and a payday loan to keep the store going. We worked with her to file a Chapter 7 bankruptcy, and now she can move on.