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Student Loan Forgiveness In Court Under Biden Administration Allows Debt Discharge Through Bankruptcy

If your debt is forgiven or dismissed for less than the whole amount that you owe, the amount that you don't have to pay is considered to be canceled. (Photo: Getty Images)

Some people with student loans can get their loans forgiven through the bankruptcy process, but it’s been hard to do so in the past. New rules might change student loan forgiveness in court, though.

Forbes said that in January, the Justice Department changed the form that borrowers must fill out to get their federal student debts forgiven when they file for bankruptcy.

These changes include “tweaks to the reporting of monthly household income, clarifying instructions regarding when a borrower needs to provide additional information, new questions seeking details on whether a school closure impacted a borrower’s ability to repay their student loans, and more detailed information on a borrower’s student loan forgiveness in court, deferment, forbearance, and consolidation history.”

Student Loan Forgiveness In Court Under Biden Administration Allows Debt Discharge Through Bankruptcy

Student loans are usually erased if the borrower works in a certain job for a certain amount of time. (Photo: Getty Images)

In the changes, it was also said that a borrower’s handicap does not have to be “permanent,” simply “chronic,” for it to be a possible reason for a bankruptcy discharge.


Student Loan Forgiveness In Court Under Biden Administration

This comes after the Department of Justice (DOJ) and the Department of Education (ED) released new rules in November to make it easier for people to get rid of their federal student loan forgiveness in court when they file for bankruptcy and to set standards for how they should be done.

In a news statement at the time, the DOJ noted that the new approach will assist make sure that federal student loan forgiveness in court is treated the same way when they are discharged. It will also make it easier for borrowers to find circumstances where discharge is appropriate.

Associate Attorney General Vanita Gupta stated in a November statement, “Today’s guidance lays out a better, fairer, and more open process for student loan borrowers who file for bankruptcy.”

“It will make it easier for lawyers at the Justice Department to find circumstances in which we can suggest that a borrower’s student debts be forgiven. We are thankful to the Department of Education for working with us to establish these rules.

Indeed, the National Consumer Law Center noted that student loan forgiveness in court are dischargeable in bankruptcy only because of undue hardship, and current bankruptcy court practice has made “such discharges difficult to obtain while being overly intrusive in requiring personal information from the debtor,” something the new guidance seeks to rectify.

It’s vital to keep in mind that the new changes are still new, so it’s too soon to tell how well they’re doing.

“Borrowers interested in pursuing a bankruptcy discharge of their federal student loan forgiveness in court should consult with a bankruptcy attorney licensed to practice in their state,” Forbes reported, adding that you can find a local bankruptcy attorney via the National Association of Consumer Bankruptcy Attorneys, or you can contact your state or local bar association for a referral.

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