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Can student loans be discharged by bankruptcy?
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Can student loans be discharged by bankruptcy?

On Behalf of | Nov 22, 2022 | Bankruptcy, Blog |

Filing for bankruptcy in Louisiana is a big step. Although you must meet certain legal guidelines to qualify for total or partial debt forgiveness, time is of the essence if you want to stave off more costly, long-term legal issues like foreclosure, wage garnishment, or repossession.

One thing that has been exempt from bankruptcy protection for some time is student loan debt. How does the federal student loan forgiveness program affect that exemption?

Previous guidelines regarding student debt forgiveness

Prior to 2022, students could only discharge federal student loans under very specific – and often hard to prove – circumstances. This is known as an “undue hardship” requirement, and it would take an act of Congress to remove.

The process is difficult to navigate and burdensome to most people, resulting in millions of individuals gaining only partial relief even after going through the bankruptcy process.

The student loan forgiveness program

The purpose of student loan forgiveness is to provide much-needed relief to the millions of former students who are drowning in sometimes exorbitant loan balances that often take decades to pay. However, the program hit a few snags in the form of lawsuits and a block by a federal court in Texas.

All hope is not lost, though. The Department of Justice has unveiled some guidelines of its own that are designed to help keep the Department of Education at bay, at least under certain conditions.

How new DOJ guidance improves transparency in bankruptcy court

On Nov.. 17, 2022, the DOJ announced a new set of guidelines that are meant to streamline the process of proving financial hardship as it relates to discharging student debt in bankruptcy court. Developed in coordination with the Department of Education, these guidelines were created with an eye toward working with former students and creating a higher degree of transparency about how financial hardship is defined and proved in court.

The new process requires debtors to provide financial information to the government, where it will be reviewed by agents from the DOJ in consultation with the DOE. The agency will then make recommendations to bankruptcy judges about whether the financial burden has been proved by the petitioner during the creditor objection phase of the filing process.

The hope is for a fairer, faster way of legally discharging student loan obligations until the federal forgiveness program is sorted out and implemented.

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