Students Loans Have Restarted: Should You File for Bankruptcy?
As of October 2023, federal student loan payments have resumed. What that means for debtors in the St. Petersburg area is that they will need to begin planning for monthly student loan payments alongside other financial obligations. For student loan holders who were already struggling with debt before loan payments resumed, the addition of a monthly student loan payment obligation might make it impossible to survive financially without accumulating more debt and getting behind on payments. If you are in this situation, you might be wondering: should I file for bankruptcy?
Although the common thinking used to be that student loans were extremely difficult to discharge in bankruptcy, it is essential for debtors in the present to know that there is a new process at work for determining eligibility for a full or partial discharge of student loans. The new process is designed to make discharging student loans easier for debtors. Our bankruptcy lawyers in St. Petersburg can explain in more detail, and we can speak with you today if you are considering a bankruptcy filing in Florida.
New Process for Student Loan Bankruptcy Discharges
If you have previously looked into the possibility of filing for bankruptcy in Florida to have your student loans discharged, you might have encountered the myth that student loans are non-dischargeable, or that they are nearly impossible to discharge in a bankruptcy case. To be clear, the Bankruptcy Code does list educational debt as an exception to discharge unless the debtor can prove that continuing to make payments on an education loan or loans would impose an undue hardship. This process of proving the undue hardship used to be extremely complex and costly, which is why many debtors did not even try. While the undue hardship requirement still exists, the process is now significantly easier.
According to a fact sheet on the topic from the U.S. Department of Justice (DOJ), once an adversary proceeding is initiated — a necessity for discharging student loans in bankruptcy — the debtor will simply supply DOJ attorneys with information about their financial circumstances, and the DOJ will then make a recommendation to the bankruptcy judge about whether the debtor’s student pans should be fully or partially discharged.
What to Expect in the Adversary Proceeding
What should you expect as part of the new process? As we noted, bankruptcy filers will still need to go through an adversary process (which occurs alongside the bankruptcy case), but it will be much easier. The debtor will fill out an “attestation form” that provides information that will allow the DOJ to assess the factors for undue hardship.
The three major undue hardship factors the DOJ will assess, based on the information in the attestation form, include:
- Debtor’s present ability to pay student loans;
- Debtor’s likely future ability to pay student loans; and
- Debtor’s previous good faith efforts to pay or manage student loans.
Once the DOJ assesses these factors, it will make a recommendation to the bankruptcy judge.
Contact a St. Petersburg Bankruptcy Lawyer
So, should you file for bankruptcy to seek a discharge of your student loans? You certainly could be eligible to have your loans discharged. You should contact an experienced St. Petersburg bankruptcy attorney at the Law Offices of Stephen Barszcz today for assistance.