Appeals Court Green-Lights Student Loan Forgiveness Program
A federal appeals court has upheld the dismissal of a legal challenge to a key Biden administration student loan forgiveness initiative. The decision leaves intact more than $51 billion in debt relief already granted, and paves the way for more after the Biden administration recently extended a key deadline associated with the program.
The legal challenge focused on the IDR Account Adjustment, an initiative first announced by President Joe Biden in the spring of 2022. Designed to provide a retroactive “fix” to longstanding problems associated with income-driven repayment plans and Public Service Loan Forgiveness that had often blocked borrowers from receiving relief (or prolonged their time in repayment), the temporary initiative can be transformative.
“Many people consider a college education the ticket to the American dream. Some take out student loans to get the ticket. Paying back those loans can turn into a nightmare,” wrote the court in its ruling.
Chapter 7 and Student Loan Forgiveness
Distressed student loan debtors don’t have to wait for politicians to do something about this pressing problem. A recent change in the law made student loan forgiveness in Chapter 7 bankruptcy more likely than ever.
First, a bit of background. Originally, student loans were general unsecured debts, which are generally dischargeable in a Chapter 7. However, in the 1970s, Congress added a “good cause” discharge requirements to student loans. Congress intentionally didn’t define “good cause.” Instead, it punted that critical issue to the courts.
For many years, Illinois bankruptcy courts used the harsh Brunner rule to resolve student loan forgiveness disputes. Student loan forgiveness was available only if:
- The debtor made a good faith effort to repay the loans,
- A disability or other such condition inhibited repayment, and
- Repaying the loan would force the debtor, and any dependents, below the poverty line.
Despite this harsh rule, a Chicago bankruptcy lawyer was usually able to obtain at least partial student loan forgiveness, through the bankruptcy mediation process.
President Biden recently instructed the Justice Department, which manages the bankruptcy trustee program, to consider additional factors, such as the borrower’s age, when considering discharge.
These changes make it much easier for a Chicago bankruptcy lawyer to obtain complete student loan forgiveness in a Chapter 7. Other unsecured debts, which are dischargeable in nearly all cases, include credit cards and medical bills.
Chapter 13 and Student Loan Repayment
Nevertheless, not all borrowers qualify for Chapter 7 student loan forgiveness. However, nearly all borrowers qualify for Chapter 13 student loan repayment.
These debtors must have less than $1.2 million in mortgage or other secured debts, and less than $400,000 in credit card and other unsecured debts. Additionally, Chapter 13 debtors must have sufficient disposable income to fund a monthly debt consolidation payment. More on that below.
Chapter 13 (a/k/a the wage-earner plan) gives debtors up to five years to catch up on past-due student loan and other payments. During this repayment period, creditors cannot harass debtors, garnish wages, or take most other forms of adverse actions.
A Chapter 13 repayment plan is an income-based plan. As long as these proposed plans meet minimum legal requirements, bankruptcy judges almost always approve them.
Furthermore, Chapter 13 gives a Chicago bankruptcy lawyer a chance to re-negotiate key student loan terms, such as the interest rate. A tiny interest rate reduction could save your family thousands of dollars over the life of the loan.
Work With a Thorough Cook County Lawyer
No matter what kind of financial problem you are having, bankruptcy could be a way out. For a confidential consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.
Source:
forbes.com/sites/adamminsky/2024/05/28/court-allows-biden-student-loan-forgiveness-initiative-handing-borrowers-a-big-victory/?sh=bd6678e6d1d6
