Although there hasn’t been any good economic news for 2020, if you are buried under student loans, there were some amazing developments recently.
A recent court decision may allow you to discharge your debts through bankruptcy. !
The 10th Circuit U.S Court of Appeals’ decision is very narrow so it’s only worth two exclamation marks for now. The mere fact that a court ruled student loans can be discharged (meaning “wiped out”) by filing bankruptcy is huge news.
Are Private Student Loans Dischargeable in Bankruptcy
Student loans, unlike car loans, mortgages, and other unsecured debts such as credit cards, are not usually discharged in bankruptcy.
They are basically like tattoos. They are usually acquired when people are young and remain with them for the rest of their lives.
What did McDaniel do v. Navient?
This is the case’s name, but it’s not crucial. You only need to know that a Colorado couple successfully argued for Chapter 13 bankruptcy to discharge approximately $200,000 of student loan debt.
Many people can be like McDaniels. They find themselves in a financial crisis and file for bankruptcy. However, most of their debts are discharged, except student loans. This means that they are still in a difficult financial situation. They want to rebuild their financial life, but with $200,000 in debt it is difficult to do so.
What is “Undue Harship”? How does this Bankruptcy Ruling change it?
To have student loans forgiven, you must meet the “undue hardship” standard. You must pass the Brunner test to be eligible for student loans.
It is named after Marie Brunner who was a plaintiff in a 1983 case and tried to get $9,000 in student loan repayments through bankruptcy. There are three requirements to pass the test.
- Debtors will need to prove that their income and expenses are not sufficient to repay their loan.
- The debtor must show that the situation will continue during a substantial portion of their repayment period.
- The proof that a debtor has made good faith efforts to repay the loan must be shown.
It would seem that anyone who is so desperate to file for bankruptcy would automatically be considered living in undue hardship. However, lenders often contest it and have more money and lawyers to fight the battle.
Do You Need to File for Bankruptcy?
This ruling only applies to the 10th Circuit, which includes Oklahoma, Kansas and New Mexico as well as Colorado, Wyoming and Utah. It also covers parts of Montana, Idaho, Montana, and Wyoming. However, legal experts believe it will be a precedent that will force other courts to release student loans more readily.
Dalie Jimenez, a professor from the University of California Irvine School of Law said that there are more options for consumers.
It is not clear how long it will take these avenues to expand into other states. Don’t let a collection agency harass you about student-loan payments that are past due.
You should call a non-profit credit counseling agency. They will first review your finances to determine if there are ways you can improve them so that bankruptcy is avoided.
Do not file if you can! !
Three exclamation marks is enough to make bankruptcy seem like a poison pill. This will cause your credit score to be ruined for seven to ten years, making it harder for you get a loan for a house or car.
However, if bankruptcy cannot be avoided by a debt management plan or another strategy, the counselor will evaluate your chances of getting your student loans forgiven.
These chances were almost non-existent in the past. There is reason to be optimistic.
It’s enough reason to be happy, considering how everything else has gone for 2020.