Filing for student loan bankruptcy can be complex but offers relief for those with too much debt. You start by filing for Chapter 7 or Chapter 13 bankruptcy. Then, you must file an adversary proceeding, a lawsuit within the bankruptcy case, to discharge your student loans.
To discharge student loans, you must show that repaying them would cause "undue hardship." This is harder than discharging other debts. But, new Department of Justice guidelines in 2022 have made the process easier. Now, almost all borrowers get full or partial discharges of their student loans.
Key Takeaways
- Filing for student loan bankruptcy involves two main steps: filing for Chapter 7 or Chapter 13 bankruptcy, and then filing an adversary proceeding to have your student loans discharged.
- The key to successful student loan discharge is proving "undue hardship," which requires demonstrating factors like an inability to maintain a minimal standard of living, continued hardship throughout the loan repayment period, and sincere efforts to repay the loans before filing for bankruptcy.
- The new 2022 process has resulted in more than 99% of borrowers being granted at least a partial discharge of their student loan debts.
- The adversary proceeding paperwork has been significantly simplified, making it easier for borrowers to establish undue hardship.
- Bankruptcy can have long-term impacts on your credit score and history, so it's important to carefully consider all options before filing.
Understanding Student Loan Bankruptcy
Before you file for student loan bankruptcy, it's important to know the basics. You must meet certain requirements for Chapter 7 or Chapter 13 bankruptcy. These include income limits and debt thresholds.
You also need to show that paying back your loans would cause you undue hardship. This is a tough standard to meet.
Key Considerations
To discharge student loans in bankruptcy, you must file an adversary proceeding. This is a lawsuit within your bankruptcy case. It's a time-consuming and costly step.
You'll have to prove that repaying your loans would be too hard. Bankruptcy can hurt your credit for up to 10 years.
The Process
The first step is filing for Chapter 7 or Chapter 13 bankruptcy. Then, you'll need to file an adversary proceeding for your student loans. This step can take time.
Chapter 7 might allow for a quicker discharge than Chapter 13's 3-5 year plan. Remember, student loans aren't automatically discharged in bankruptcy. You must prove undue hardship, a high standard.
However, recent changes have made it easier to meet this standard, especially for federal loans.
Proving Undue Hardship
If you're having trouble paying back your student loans, bankruptcy might be an option. But, you must show that paying back the loans would be too hard. Most places use the Brunner test to decide this.
The Brunner test looks at three main things:
- Can you afford to live if you have to pay back the debt?
- Will your money situation stay tough for a long time?
- Have you tried to make more money and spend less to pay off the loans?
Some areas, like the Eighth Circuit, use the totality of the circumstances test. This test looks at more than just your money now and later. It also considers your living costs and other bankruptcy factors.
| Key Factors in Undue Hardship Determination | Brunner Test | Totality of Circumstances Test |
|---|---|---|
| Current Financial Situation | ✓ | ✓ |
| Future Financial Prospects | ✓ | ✓ |
| Good-Faith Repayment Efforts | ✓ | - |
| Broader Financial Factors | - | ✓ |
It's hard for courts to say what "undue hardship" really means. The rules can change based on the judge, your money situation, and how hard you've tried to pay back your loans. Getting help from a lawyer can make this process easier and help figure out if you can get your loans discharged.
https://youtube.com/watch?v=d-dWi5-pooQ
How to File for Student Loan Bankruptcy
The Attestation Form
The first step in filing for student loan bankruptcy is to fill out an Attestation Form. You must send it to the Department of Justice (DOJ). This form is 15 pages long and asks about your current finances, future plans, and efforts to pay back your loans.
The DOJ reviews this form to decide if you qualify for a settlement. If they agree, they might suggest that your loans be reduced or wiped out. Even if they don't agree, a judge can still decide to discharge your loans.
The Attestation Form is very important in this process. It shows your financial situation and how hard you've tried to pay back your loans. This can help you get a better outcome for your bankruptcy case.
The process of getting your loans discharged can be tricky. But, with the right steps and paperwork, you can succeed. By filling out the Attestation Form and sending it to the DOJ, you're taking a big step towards solving your debt through bankruptcy.
Conclusion
Discharging student loans in bankruptcy is a complex process. It can offer much-needed relief for those with overwhelming debt. By filing for Chapter 7 or Chapter 13 bankruptcy and then completing an adversary proceeding, you might get your loans partially or fully discharged.
To succeed, you must show that repaying the loans would cause undue hardship. This can be done through the Brunner test or the totality of the circumstances test. Factors like mental or physical disability, obligations to dependents, limited education or job skills, and lack of assets can help prove undue hardship.
The process is tough, but recent guidance from the Department of Justice aims to make it easier. This guidance simplifies gathering facts and increases support for discharging loans for undue hardship. By understanding the requirements and options, you can pursue student loan bankruptcy. This might help you achieve the debt relief you need.
FAQ
What are the main steps involved in filing for student loan bankruptcy?
Filing for student loan bankruptcy has two main steps. First, you need to file for Chapter 7 or Chapter 13 bankruptcy. Then, you must start an adversary proceeding. This is a lawsuit within the bankruptcy case to discharge your student loans.
What key considerations should I keep in mind before filing for student loan bankruptcy?
Before filing, you must meet certain requirements. These include income limits and debt thresholds for Chapter 7 or Chapter 13 bankruptcy. You also need to show that repaying your loans would cause undue hardship.
The process is long and costly. It can also hurt your credit for up to 10 years.
How does the process for discharging student loans in bankruptcy work?
The process starts with filing for Chapter 7 or Chapter 13 bankruptcy. Then, you must file an adversary proceeding. This is a lawsuit within the bankruptcy case.
In this lawsuit, you must prove that repaying your loans would cause undue hardship.
What are the legal standards for proving undue hardship?
To discharge your loans, you must show undue hardship. This is a tough standard to meet. Most states use the Brunner test.
This test looks at your current and future finances. It also checks if you've tried to repay your loans in good faith. A few states use the totality of the circumstances test, which is more flexible but still requires showing your situation won't improve enough to repay the loans.
What is the Attestation Form and how does it fit into the student loan bankruptcy process?
The Attestation Form is a key part of the new bankruptcy process. It's a 15-page form that gives detailed information about your finances and repayment efforts. The Department of Justice (DOJ) uses this form to decide if you've experienced undue hardship.
If the DOJ agrees, it will recommend discharging your loans. Even if they don't agree, the bankruptcy judge can still decide to discharge your loans if they find undue hardship.
No comments:
Post a Comment