If you are one of the many student borrowers in Orange County who is drowning in student loan debt you may see some relief soon. While it was very difficult to discharge student loans through bankruptcy in the past, some positive developments have opened some doors.
First, lawmakers are moving to reverse the laws which make it difficult, if not impossible, to discharge student debt. While getting a bill signed into a law is never a certainty, student loan debt is swiftly becoming a bipartisan issue and the climate seems good for bringing debt relief. Several of the 2020 presidential candidates are weighing in with all sorts of proposals.
The IRS has even ruled employers may deposit a student loan repayment match into an employee’s 401K, which means borrowers won’t have to choose between paying their loans and saving for retirement.
The new report not only has recommendations for lawmakers (which also urges them to make it possible to discharge student loans through bankruptcy), but recommendations for judges as well.
See also: 4 Bankruptcy Laws Every Client Should Know.
Since 1985 there has been a single, limited path to discharging student loans. Borrowers could prove they faced “undue hardship” if they were forced to repay. And the definition of “undue hardship” was somewhat draconian. You had to prove, basically, that you couldn’t subsist, couldn’t meet even your most basic needs, if you had to pay the loans…and that this condition was likely to persist for the rest of your life.
The new recommendations suggest a new standard: the borrower is likely to be pushed into poverty by paying the loans over the term of the loan (typically 10 years). This is a much gentler standard, and one that’s easier to meet.
Whether or not a student loan is discharged is at the discretion of the US Bankruptcy judge in charge of any given case. In the past, even judges who have been sympathetic to student borrowers have often felt as though they didn’t have the weight of legal opinion and precedent behind them. Feeling bound by the laws, they have stuck to the strict interpretation.
The ABI report could give many of these judges the backing they need to bring far more student loans under the umbrella of bankruptcy protection.
Would your situation qualify for help under the new rules? You won’t know until you take advantage of one of our consultations. Bring your financial information and find out whether you might be able to get out from under the thumb of your student loans…before the law changes.
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