Are Student Loans Being Forgiven in Bankruptcies?

Yes, student loans are being forgiven in bankruptcies, partially because, in 2024, former President Joe Biden undid a mistake he made some twenty years earlier. In 2005, then-Senator Biden led the charge to end some of the last bankruptcy protections for student loan debtors, primarily those who had private student loan debt related to technical schools and other such institutions. In May 2024, Biden instructed the Department of Justice to not only restore those protections, but expand them as well.

The 2024 update created multiple legal options for distressed debtors struggling with excessive student loan payments. A Chicago bankruptcy lawyer reviews your situation and recommends the best option for you and your family. More importantly, a Chicago bankruptcy lawyer represents debtors every step of the way, from the filing of a voluntary petition to the final confirmation hearing.

Complete Student Loan Forgiveness

Student loans are unsecured debts, which are generally dischargeable in bankruptcy. However, in the 1980s, courts added an undue hardship requirement, a restriction most Chicago bankruptcy lawyers define as a certainty of hopelessness.

Now, instead of undue hardship, bankruptcy courts consider the totality of the debtor’s circumstances. These relevant circumstances include the size of the debt, the borrower’s efforts to repay that debt, and the borrower’s monthly financial profile.

Additionally, Biden instructed Department of Justice and Department of Education lawyers not to contest discharge as aggressively, especially if the borrower can show financial need and a history of good faith efforts to pay the loans.

All the numbers aren’t in yet, but preliminary figures indicate that many more debtors are entitled to total student loan forgiveness under the new rules, and the new application of those rules. The takeaway is clear. If you tried to discharge student loans in bankruptcy before 2024, try again, and make sure a Chicago bankruptcy lawyer is in your corner.

We should note that “student loan forgiveness” in bankruptcy is a discharge. Discharge means the judge eliminates the legal obligation to repay the student loan or other discharged obligation. If the creditor filed a lien or took other collections actions, a lawyer must address those actions in a separate proceeding.

Partial Student Loan Forgiveness

Complete student loan forgiveness isn’t possible in all consumer bankruptcy cases. Even under the new rules and new applications, some debtors don’t qualify.

These debtors may still qualify for partial discharge. Usually, when a lawyer files a motion to discharge a student loan or another priority unsecured debt, the judge refers the matter to mediation.

Usually, a court-appointed mediation supervises a marathon negotiation session that typically lasts a full day. During this negotiating session, both sides, the bank and the debtor, have a duty to negotiate in good faith. They must honestly try to settle the dispute out of court. They cannot simply go through the motions. “I’ll see you in court” is not an honest effort to resolve the matter.

Furthermore, they must negotiate in good faith. “Take it or leave it” is not a good faith offer, because it leaves no room for negotiation.

Because of this double responsibility, even if they don’t qualify under the rules, most student loan debtors at least receive a partial discharge. Usually, a Chicago bankruptcy lawyer also successfully renegotiates other key terms, such as the interest rate.

 Reach Out to a Thorough Cook County Lawyer

No matter what kind of financial problem you are having, bankruptcy could be a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. After-hours visits are available.

Source:

cnbc.com/2024/03/12/biden-makes-it-easier-to-forgive-student-debt-in-bankruptcy.html