Due to recent changes the process of applying for relief from student loan debt in bankruptcy has become much easier. Previously debtors had to have this decided by having a lengthy motion in front of the Judge. Now the debtor can apply by filling out a form that is sent to the Department of Justice which then makes a recommendation to the Court. This new process will apply to all “DOE-held” federal loans.
A student loan can be discharged in bankruptcy in certain circumstances. Generally, a student loan will not be discharged in bankruptcy unless the borrower can demonstrate that repayment of the loan would cause an undue hardship on the borrower and his/her dependents. To demonstrate an undue hardship, the borrower must prove that he/she is unable to maintain a minimal standard of living and that this inability is likely to continue for a significant portion of the repayment period. If a student loan is discharged in bankruptcy, the borrower will no longer be responsible for repaying the loan.
Discharging student loan in bankruptcy is an option available to US borrowers that allows them to eliminate their student loan debt through the court system. This process requires the borrower to show that paying back the loan would impose an undue financial hardship. To prove this, they must fill out and submit the appropriate paperwork to the Justice Department who then makes their recommendation to the Court. If the Court approves their application after the Justice Department recommends it, the student loan debt will be eliminated. The change in the Justice Department form was an update made to the form used when filing student loan discharge in bankruptcy. The form was modified to include more questions to ensure that borrowers have fully explored all other options before filing for bankruptcy. The form also requires information related to income and expenses so the Court can determine whether repaying the loan would be too difficult for the borrower.
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