For years, student loan debt felt like a life sentence for many borrowers. The common belief was that these loans could never be eliminated through bankruptcy. However, recent changes to federal guidelines have opened new doors for struggling borrowers. If you carry student loan debt in Ann Arbor, Jackson, Saginaw, or Midland and wonder whether bankruptcy could provide relief, here’s what you need to understand about these updates.
How Student Loan Bankruptcy Rules Have Changed
In November 2022, the federal government announced a major shift in how federal student loans would be handled in bankruptcy cases. Before this change, the Department of Justice fought hard against nearly every attempt to discharge student loans. Borrowers faced an almost impossible standard to meet.
The new guidance creates a clearer, more consistent process. Department of Justice attorneys now evaluate each case using specific criteria to decide whether to recommend a full or partial discharge. While the final decision still belongs to the bankruptcy judge, this change makes relief more accessible for those who truly cannot afford their loans.
This update applies only to federal student loans. Private student loans follow different rules and may be harder to discharge.
What Is the Process for Discharging Student Loans?
Eliminating student loans through bankruptcy requires more than filing a standard bankruptcy petition. Here is what the process involves:
- File for bankruptcy ‒ You must first file either Chapter 7 or Chapter 13 bankruptcy to begin the process.
- Initiate an adversary proceeding ‒ This is a separate lawsuit filed within your bankruptcy case against the Department of Education.
- Complete a borrower attestation form ‒ This document provides information about your financial situation and hardship.
- Await government review ‒ The Department of Justice and Department of Education will review your case and make a recommendation to the judge.
The bankruptcy court will then decide whether your student loans qualify for discharge based on the evidence and recommendations provided.
What Factors Determine Eligibility for Student Loan Discharge?
The Department of Justice considers three main areas when evaluating whether to recommend discharge:
Your Current Ability to Pay
Attorneys will compare your income to your expenses using IRS standards. If your expenses equal or exceed your income, they may determine that you lack the present ability to repay your loans.
Your Future Ability to Pay
The review will also consider whether your financial struggles are likely to continue. Certain factors suggest your situation may not improve, including:
- Being at or near retirement age
- Having a disability or chronic health condition
- A long history of unemployment
- Not completing your degree
- Already being on an extended repayment plan
Your Good Faith Efforts
The government will look at whether you have made reasonable attempts to manage your debt. This includes whether you contacted your loan servicer about payment options, made efforts to earn income, and managed your expenses responsibly.
Why Working With a Michigan Bankruptcy Lawyer Matters
Filing for bankruptcy is complicated enough on its own. Adding a lawsuit to discharge student loans complicates the process even further. An experienced attorney can help you understand whether you meet the eligibility criteria and guide you through each step of the process.
Many people hesitate to hire legal help when they are already struggling financially. However, attempting to handle these matters alone often leads to costly mistakes. A knowledgeable lawyer can help you present the strongest possible case to the court.
If student loan debt has become overwhelming, the attorneys at Marrs & Terry, PLLC can help you explore your options. Our Michigan law offices in Ann Arbor, Jackson, Saginaw, and Midland have spent over two decades helping clients find solutions to challenging financial situations. Contact our law firm today to find out whether bankruptcy can provide the fresh start you need.