Update (November 8, 2024):
Just yesterday on November 7, 2024 The New York Times reports “Judge Halts Biden Student Debt Plan Right After It Was Allowed to Proceed”. A federal judge in Missouri temporarily blocked a Biden administration plan to cancel student debt less than a day after another judge had allowed it to proceed, throwing into uncertainty the fate of a program that could affect more than 27 million borrowers.
Filing for bankruptcy is often seen as a last resort for those struggling with overwhelming debt. However, one of the most common questions clients ask when considering this step is whether their student loans can be forgiven. As an attorney who has represented thousands of clients through Chapter 7 and Chapter 13 bankruptcies, I understand the complexities surrounding this issue.
In this blog, I’ll explore how student loans are treated in bankruptcy, particularly in Texas, and provide insight into the ongoing efforts to reform student loan forgiveness on a broader scale.
The Challenge of Discharging Student Loans in Bankruptcy
One of the most significant challenges of filing for bankruptcy is the difficulty of discharging student loans. Unlike credit card debt, medical bills, and personal loans, these types of loans are generally not forgiven when you file for bankruptcy. This is true whether you file under Chapter 7 or Chapter 13.
The primary reason student loans are so difficult to discharge is due to the Bankruptcy Code, which places them in a special category of debt that is considered nondischargeable. To have your student loans discharged, you must demonstrate that repaying them would impose an “undue hardship” on you and your dependents.
What Is “Undue Hardship”?
The standard for proving undue hardship is notoriously strict. Courts use a test known as the Brunner Test to determine whether you meet the criteria for undue hardship. To pass the Brunner Test, you must prove three things:
- Poverty: You cannot maintain a minimal standard of living for yourself and your dependents if you are forced to repay the loan.
- Persistence: Your financial situation is unlikely to improve over the repayment period.
- Good Faith: You have made a good faith effort to repay the loan, including attempting to negotiate a lower payment or seek alternative repayment options.
Successfully proving undue hardship is difficult, and the vast majority of bankruptcy filers do not have their student loans discharged. However, it is not impossible, and with the right legal guidance, it may be possible to argue your case successfully.
Student Loans and Bankruptcy in Texas
In Texas, as in the rest of the country, student loans are generally treated as non-dischargeable in bankruptcy. This means that when you file for bankruptcy in Texas, your student loans will typically remain intact unless you can prove undue hardship. However, Texas residents do benefit from certain exemptions that can protect your other assets during bankruptcy, such as your home and retirement accounts, which can help you manage your overall financial situation.
Filing for bankruptcy can still provide relief by discharging other types of debt, freeing up your income to focus on student loan repayment. Additionally, if you file for Chapter 13 bankruptcy, you may be able to restructure your debt and include student loan payments in your repayment plan, giving you more manageable terms over the three to five-year period.
President Biden’s Efforts and the Future of Student Loan Forgiveness
In recent years, there has been growing political and public pressure to reform the treatment of student loans in bankruptcy. President Joe Biden has been a strong advocate for making it easier to discharge these types of loans in bankruptcy, and his administration has taken steps to explore changes in this area.
President Biden has also attempted to implement broader student loan forgiveness through executive actions. For instance, he has proposed forgiving up to $10,000 in federal student loan debt for many borrowers, with additional forgiveness for those in certain public service careers. However, these efforts have faced significant legal challenges, with various courts around the country blocking these attempts, leaving the future of student loan forgiveness uncertain.
While the outcome of these legal battles remains to be seen, the increasing attention on the issue suggests that changes could be on the horizon. If reforms are enacted, they could make it easier for borrowers to manage or discharge their student loans through bankruptcy or other forgiveness programs.
What You Can Do If You’re Struggling with Student Loans
If you’re struggling to pay your debts, bankruptcy might not provide the immediate relief you’re looking for, but that doesn’t mean you’re out of options. Here are some steps you can take:
- Explore Repayment Plans: Federal student loans offer various repayment plans based on your income, which can lower your monthly payments. These include Income-Based Repayment (IBR) and Pay As You Earn (PAYE) plans.
- Consider Loan Forgiveness Programs: Some borrowers may qualify for loan forgiveness through programs like Public Service Loan Forgiveness (PSLF), which forgives the remaining balance on federal student loans after 120 qualifying payments under a qualifying repayment plan while working full-time for a qualifying employer.
- Consult with a Bankruptcy Attorney: If you’re considering bankruptcy, consulting with an experienced attorney can help you understand your options, including whether you might qualify for undue hardship or how bankruptcy could improve your overall financial situation.
- Stay Informed on Legislative Changes: The landscape of student loan forgiveness is evolving, so staying informed about new legislation or executive actions that could impact your loans is crucial.
Contact a Bankruptcy Law Firm For Help
Debt and thoughts of bankruptcy can be overwhelming, but you don’t have to do it alone. At Warren & Migliaccio, L.L.P., we have helped thousands of clients manage their debt and explore their options for financial relief.
For a free consultation to discuss your situation and find out how we can assist you, call us at (888) 584-9614 or fill out our online contact form. We’ll provide the guidance you need to take control of your financial future.
