Tag: student loans

student loan forbearance ends 2022

Student Loan Payment Pause Extended: Deferment Thru June 2023

Student Loan Payment Pause & Deferment Extended thru June 2023

Student Loan forbearance and payment pause extended to July 2023; there are still options

November 2022 update: The student loan payment pause has been extended again, for the sixth time, to June 30, 2023.  The pause may end and payments resume if lawsuits are resolved first. If the June 30 2023 student loan pause lapses without litigation being resolved, payments will resume 60 days after that. Also big news in Nov 2022: the Biden Justice Department (DOJ) has announced new guidance which will make it easier to discharge student loan debt in bankruptcy.

April 2022 update: The student loan payment pause was set to end May 1, 2022, but the Biden administration extended it through August 31, 2022.  It was previously set to end on May 1, 2022. Since March 2020, millions of student loans were given forbearance and deferment with no payments due, interest stopped accruing, and there have been no collections against those in default due to the student loan payment pause.

Now, all that student loan relief changes back to normal on Sept 1, 2022.

Will student loans be deferred again in 2022?

As we get closer to election season, it looks like there may be more student loan deferments.  Back in August 2021, the Department of Education called the student loan pause a “final extension.” In December 2021, the White House confirmed that the student loan payment pause will not be extended. Then earlier this year and again, today, that’s exactly what the Biden administration did.

What action items should I do?

Update your contact information with your student loan servicer. While you’re there, let them know that you want to resume automatic payments if that’s your goal.

Alternatives to paying unaffordable student loans

Apply for student loan forbearance

If you can’t afford to pay your student loans, you can still apply for student loan deferment or forbearance. While it’s been automatic the past two years, student loan forbearance or deferment is still an option in 2022.

Income-driven student loan repayment plans

Also, there are income-driven repayment plans such as IBR, ICR, PAYE, or REPAYE. These programs set your student loan payment based on what you can afford, which state you reside in, and family size. These income-based repayment plans are not guaranteed acceptance, and not every loan type is eligible for each program.

Will bankruptcy help with my student loans?

You probably heard that, as a rule, you cannot discharge student loan debt in bankruptcy.  However, there are three things to consider with student loans and bankruptcy.

First, in extremely rare situations, you can discharge student loan debt in bankruptcy. You may have heard that the standard is undue hardship, and that’s exactly what you’ve got. However, courts have ruled that everyone filing bankruptcy has a hardship, and to show it’s undue is difficult, challenging, and very unlikely in most cases.

Second, filing Chapter 13 bankruptcy gets you a five-year deferment on repaying your student loans directly. You don’t generally need to apply or ask for the forbearance; it’s automatic. The student loan debt shares in the debt consolidation plan payments.

Third, there’s a Fresh Start bill in Congress which may change student loan forgiveness and allow some student loans to be discharged in bankruptcy. As 2022 begins, this S2598 bill is still in the Senate and hasn’t moved since August.

Contact us for a consultation

If you’re in the Los Angeles County area, contact us and let’s arrange for a no-obligation Zoom consultation to see if bankruptcy would help your student loan situation.


    open door to easier bankruptcy forgiveness of student loans

    Student Loan Forgiveness in Bankruptcy: Top Keys for DOJ Guidance

    Explaining DOJ Guidance on Student Loan Forgiveness in Bankruptcy

    Bankruptcy attorney explains new DOJ guidance from the Biden Justice Department to make it easier to get student loan forgiveness in bankruptcy

    Yesterday, the Justice Department announced a new plan for student loan forgiveness in bankruptcy. The change could make it easier for people to eliminate — or “discharge”– student loan debt and to finally achieve student loan forgiveness and a fresh start in bankruptcy. Here is what it all means.

    Current law of student loans in bankruptcy

    The way things are right now, student loans in bankruptcy are almost impossible to eliminate. This is because Congress has added a requirement to show not just hardship (as many people in bankruptcy experience), but an undue hardship.  Courts have interpreted this very strictly, and, as a result, it’s extremely difficult to discharge student loans in bankruptcy.

    Does the Biden student loan initiative change bankruptcy law?

    Student loan debt in bankruptcy
    Student loan forgiveness may now be easier to achieve in bankruptcy

    No, the Biden student loan forgiveness plan does not change the law. That would take an act of Congress, literally. Unlike other Biden administration plans on student loan forgiveness, which have faced legal challenges, this current plan doesn’t change existing law or otherwise change existing contract law.  It’s merely guidance from the head of the executive branch to the Department of Justice, in the executive branch, on how it can try to steer student loan discharge bankruptcy cases.

    So the Department of Justice decides student loan forgiveness?

    Bankruptcy judges make the ultimate decisions about student loan dischargability. The Biden administration plan for student loans in bankruptcy doesn’t change that.  It just intends to make it easier for student loan forgiveness in bankruptcy by issuing recommendations to the bankruptcy court.

    Then what does the Dept of Justice have to do with bankruptcy?

    The Department of Justice is very involved in the bankruptcy process.  One might think that the IRS is the government agency that rules bankruptcy, because they’re both connected to money. However, the DOJ administers the bankruptcy process through various trustees.

    Under the arm of the DOJ, the United States Trustee is the program which ensures the integrity of the bankruptcy program by prosecuting fraud, perjury, hidden assets, and other bankruptcy crimes. This is why the 341(a) Meeting of Creditors is so critical in every case, and why you should read my 12 crucial tips of do’s and don’ts before filing bankruptcy. But back to the DOJ.

    In other words, the Department of Justice doesn’t decide student loans in bankruptcy.  However, under the Biden process for bankruptcy and student loans, the DOJ and Department of Education (also in the executive branch) would review bankruptcy cases with student loan discharge issues. They would then give the bankruptcy judge the agencies’ thumbs-up or thumbs-down.

    Biden student loan forgiveness bankruptcy
    The new student loan forgiveness in bankruptcy opens the door to an easier path to discharge

    To get there, the DOJ and Dept of Ed would review a few key factors to determine whether they will recommend discharge to the bankruptcy judge, who ultimately makes the final decision. Bankruptcy judges are independent thinkers who deliberate, consider applicable law, and provide much thought to the cases and the unique facts before them.  It’s not clear how much weight bankruptcy judges will give to this government recommendation, as each judge and each case is different.

    The factors the Dept of Justice and Dept of Education reviews for student loan discharge

    Consistent with current case law of Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2nd Cir 1987),  the agencies will review factors to determine if they will recommend discharge to the bankruptcy judge. It’s not all or nothing, as a partial discharge of student loan debt is possible. In re Saxman, 325 F.3d 1168 (9th Cir. 2003).  These factors, in no particular order or weighting known at this point, are:

    Present ability to pay

    First, to evaluate this factor, DOJ attorneys will compare debtor’s expenses to two different things.

    1. To start off, the IRS has standards about what is considered reasonable expenses, and the Justice Department will compare those against the debtor’s bankruptcy petition and schedules.
    2. Next, assuming expenses are “reasonable,” Justice Department lawyers will compare debtor’s budget expenses to debtor’s income. If expenses exceed income, this step is satisfied.
    Future ability to pay

    Second, the Justice Department attorneys will then review various factors such as the debtor’s age, unemployment history, education status, and others. Assessing these variables, and based upon the debtor’s unique circumstances, the DOJ will try to predict whether it is likely that debtor’s financial position will stay the same, making it hard to repay student loans in the future. If they exist, certain variables are considered presumptions for future inability to pay.

    These include if the debtor: is 65 years of age or older; has a disability or chronic illness which impacts earning potential; has been unemployed 5 of last 10 years; has failed to get a degree in the field the student loan debt was for; has had the student loan in “payment” status for at least ten years.  These factors create a presumption, and as always, can be rebutted.

    Good faith efforts

    Third, the Department of Justice will look at whether the debtor has made a good faith effort to repay the debts. Did the person contact their student loan servicer or provider for repayment options? Did they try to repay the debt? Have they responsibly managed their expenses? Was there enrollment in an income-based repayment plan? If not, is there a good reason?

    At least one of the following steps can be evidence to demonstrate good faith:  making a payment; applying for a deferment or forbearance; applying for an IDRP loan or federal consolidation loan; responding to outreach from a student loan servicer or collector for the student loan debt; engaging with the Department of Education or one of their loan servicers about payment options, forbearance or deferment options, or loan consolidation; engaging with a third-party debtor believed would help them manage their student loan debt.

    The good faith standard also looks at whether the debtor’s efforts to obtain employment, maximize income, and minimize expenses.

    Assets of Debtor

    Lastly, the Justice Department will analyze debtor’s assets.  Just because a debtor happens to own a home or other real estate shouldn’t be slam-dunk evidence that there’s a lack of undue hardship. However, the DOJ can look at and suggest debtor liquidated assets which are not necessary for the support of debtor and their dependents’ support and welfare.  Exempt property does not escape analysis, but Dept of Justice lawyers are cautioned about using it in an undue hardship analysis.

    Can I reopen an old bankruptcy case and try to discharge my student loans under the new Justice Department guidelines?

    The new procedures and standards are only for future cases.  If you filed a bankruptcy with student loans in the past, you cannot apply these new guidelines to the old bankruptcy.  Footnote 22 of the DOJ guidelines:

    This memorandum applies only to future bankruptcy proceedings, as well as (wherever practical) matters pending as of the date of this Guidance. This Guidance is an internal Department of Justice policy directed at Department components and employees. Accordingly, it is not intended to and does not create any rights, substantive or procedural, enforceable at law by any party in any matter.

    However, while you cannot open a old bankruptcy to apply this Justice Dept guidance, you may be able to try to discharge them in a new bankruptcy. As there are time requirements you have to wait between filing bankruptcy of various chapters, consult with a bankruptcy attorney to discuss your specifics.

    Procedurally, does the new DOJ guidance on student loan bankruptcy automatically happen for all filings, or is action needed?

    A few things have to happen to kick off the Biden student loan bankruptcy process. First, of course, the person, or debtor, has to file bankruptcy. Note that this Biden student loan program doesn’t change the median income eligibility requirements for Chapter 7 and the means test. Someone still has to qualify for Chapter 7 bankruptcy. The alternative would be a solution with the student loans in Chapter 13, which can still be beneficial.

    Next, in the Chapter 7 bankruptcy, the student loan discharge process is not automatic. The debtor has to file additional paperwork, which is like suing the student loan lender in something called an adversary proceeding. It’s additional time and work, and if there is a bankruptcy lawyer involved (and there really should be), this will likely mean contracting for these extra services and an additional fee.

    Finally, after the adversary proceeding has been filed and served on the student loan company, there is an attestation form the debtor completes and submits to the government. The Department of Justice and Education Department will then coordinate their resources to help determine their recommendation to the bankruptcy judge.

    Results not guaranteed, but there’s hope

    We really don’t know how successful this new Biden student loan bankruptcy guidance will be. You have to qualify for bankruptcy, then the government has to make a recommendation, and then a judge decides.

    It’s ultimately unclear how cooperative the Department of Justice and Education Department will be with student loan borrowers under this new bankruptcy process. However, there is tremendous potential for the government applying the process with an eye on compassion and working with the borrowers who most need debt relief, a fresh start, and student loan forgiveness.

    If you have student loan debt and think you fit the above factors and are in Los Angeles County, Orange County, or Ventura County, please contact me for a case evaluation. Thank you for reading.

     

    fresh start through bankruptcy act of 2021 bankruptcy for student loans

    Fresh Start Through Bankruptcy Act of 2021: Student Loan Reform

    Fresh Start Through Bankruptcy Act of 2021: Bankruptcy for Student Loans

    Student Loan forgiveness may be an option soon in bankruptcy

    2022 update: Fresh Start Through Bankruptcy Act of 2021 is still in committee, and nothing appears to be happening with it. However, the Biden administration just gave the Justice Department and Department of Education guidance to make it easier to discharge student loans in bankruptcy. Unlike the FSTBA, the Biden plan doesn’t require anything of the new Congress.

    The Fresh Start Through Bankruptcy Act of 2021 was introduced into the Senate this week. What’s startling about this is that it’s a bipartisan bill, helping its future.  The impact of the Fresh Start bill (or FSTBA) is that it would provide student loan forgiveness in bankruptcy.  Bankruptcy for student loans hasn’t been an option for decades now, being a massive burden. This student loan bankruptcy reform would change that.

    Bill Summary

    If the Fresh Start bill becomes law, it would eliminate student loan debt in bankruptcy for those  student loans that were first due ten years prior.  The undue burden test would apply for those newer than ten years. It’s still going to be tied to the means test, making a Chapter 13 a good solution for those who can afford to pay some, but not all.

    In short,  bankruptcy for student loans is on the table. But as of August 2021, student loan reform is still in the future. Write or call your senator and if/when it passes, contact your member of Congress. The Fresh Start bill still needs to become enacted into law. Now that student loan forbearance is set to end in 2022, perhaps Congress can get busy on this.

    Deeper Dive into FSTBA

    If you’re interested to learn more about the text of this student loan forgiveness bill and more precise information how it would work, I did a much more detailed write-up on the Fresh Start Through Bankruptcy Act of 2021 here.

     

     

     

    modern debtors prison

    Modern Debtors’ Prison: Why We Need Student Loan Reform Now

    Modern Debtors’ Prison

    Why We Need Student Loan Reform Now

    2022 update: The Biden administration recently announced a process to ease up student loan forgiveness in bankruptcy. There’s a student loan bankruptcy bill active in the Senate which would provide student loan forgiveness, and meaningful student loan reform.


    A long time ago, in the days of Charles Dickens and chimney sweeps, people were incarcerated until they satisfied their debts. These debtors’ prisons resulted in a Catch-22. You can’t get out of jail until you paid your debts. And you can’t pay your debts until you get out of jail. There’s now a new modern debtors’ prison.

    The New York Times recently had a piece describing a new program to enforce debt. If someone falls behind on their student loan payments, they can lose their professional license and their job. Without income, this guarantees only one thing: debtors for sure won’t be able to pay their student loans.

     [I]n 19 states, government agencies can seize state-issued professional licenses from residents who default on their educational debts. Another state, South Dakota, suspends driver’s licenses, making it nearly impossible for people to get to work.

    Student Loans are the Problem, not Debtors

    debtors prison
    We’ll set you free once you pay your debt.

    It’s bad enough that student loans are the second highest kind of household debt, after mortgages. There are a lot of reasons for this. Firstly, the federal government subsidizes the Big School industry. The government encourages high tuition costs by guaranteeing them with programs like Direct Loans. If payments aren’t made, Uncle Sam can seize a tax refund, bank accounts, garnish wages, and seize other assets. And bankruptcy court isn’t a safe haven for the graduate with unaffordable student loans, as education debt isn’t dischargeable.

    Big Education is an Overpriced Service Churning Out Poor Product

    Overpriced

    Because tuition costs are subsidized by government and a loan industry, there are disincentives for schools to compete in the open market. Let’s face it, if you knew you could sell a glass of lemonade for $1000, that you could get people to go into hock for it, and get Uncle Sam to use his muscle to help collect, why would you ever settle for only get 25 cents a glass? Especially if your competition had the same guarantees?

    Colleges are not encouraged to compete with each other in the market to be the most affordable. Since there’re no market forces in play. The average student leaves school owing almost $40,000. Schools get the tuition paid from the government. The government can get it from you. As a result, very few can pay their way through school. Over 70% of graduates leave college with debt, starting their new career with a burden on their back.

    More Competition for Jobs

    Because everyone is encouraged to go to college, standards for getting into college are getting lower. Schools have an incentive to admit as many people as possible. Students are sold a bill of goods and pot of gold on the other side of graduation. As a result, more and more people are getting into college, leading to more competition for jobs once they graduate.

    The Student Loan Bubble

    Consequently, there is a student loan bubble, or student loan crisis. More and more graduates are in the job market leading to a saturation, some settling for lower-paying jobs, causing more and more unable to pay for their student loans.

    The schools aren’t lowering the costs; why should they? Universities win, because they can charge whatever they want, independent of market forces. The government wins because it knows it can collect this debt because the graduate can’t ever escape from it.

    The optimistic incoming student isn’t comparing costs as much as they look at school prestige, or maybe how well-known its sports programs are. They think they win. That is, until they graduate. Then they realize that maybe they can’t find a good-paying job as easily as hoped, or the job they could find pays much less than needed to make ends meet.

    Faced with a choice between paying the student loan or paying rent and food, they choose the necessities. So they let the student loans go.

    A solution is to reduce the payments for the student loans, and (cut future tuition costs). Another idea is to get the government out of student loan business. Yet another fix is to do all they can to bring the wayward sheep back into the fold. To increase forgiveness programs that waive interest and penalties to get the student loan out of default.

    We Need Bankruptcy Reform on Student Loan Debt

    Under 11 U.S.C. 523(a)(8) of the Bankruptcy Code, student loan debt is not discharged in bankruptcy. There are rare instances where it can be discharged, but the exception is so narrow as to hardly exist.  “Undue hardship” requires a showing that the debtor is mostly dead, and even that isn’t always good enough.

    We need student loan reform of the bankruptcy code. Student debt reform is needed in bankruptcy so that more people can discharge their school debt.  What good is bankruptcy to the consumer debtor is the second largest form of debt is untouched by bankruptcy? Lower the bar a bit, so that after, say, five years after graduation if the student isn’t earning the median income, the schools don’t get paid the tuition. Imagine what that would do to admission rates.

    License-Pulling Makes Repayment Less Likely, Not More

    The government should be enacting change that makes it more likely the defaulting graduate can pay their student loans. It should not cutting the source of income. We’re through the looking glass to believe that if you don’t pay your bills we’ll take away your job so you can’t pay your bills. The license-pulling job-killing measure that’s spreading only ensures the jobless graduate earns less income. It makes it more likely they’re dependent on government programs. Finally, it puts defaulting graduates in a modern debtors’ prison that says they’ll get their license to earn money back as soon as they give enough money to pay their debt.