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An update on the status of student loans and bankruptcy

On Behalf of | Mar 22, 2023 | Chapter 7 Bankruptcy

The Biden Administration has made student loan debt a central policy concern.

On one front, the government is proposing to forgive all or part of the balance of federal student loans for eligible borrowers. Eligible borrowers could see up to $20,000 of their student loans forgiven.

The plan only applies to federal student loans, not to those financed or refinanced through a private lender.

The plan faces both political challenges and a legal battle. Whether the plan will ultimately go forward, or remain in its present form, is difficult to predict.

However, the Biden Administration has also made moves to make it easier to discharge student loans in a bankruptcy.

Student loans can be discharged if there is undue hardship

The law remains that a borrower has to file a special action called an adversary proceeding in order to discharge their student loans in bankruptcy. In that proceeding, they must convince a bankruptcy court that having to repay their loans will cause an undue hardship.

Among Florida borrowers, proving an undue hardship can be extremely difficult. However, it is not impossible. A Miami-area or Fort Lauderdale resident should at least understand their legal options for dealing with a student loan.

With that said, if the federal government intends to fight the adversary proceeding, a borrower may have an uphill legal battle.

The Biden Administration’s new program does not change the law, but it might make it less likely for the federal government to oppose a discharge. If the government does not oppose the discharge of student debt, a borrower may be able to use bankruptcy to get relief.

Even if a student loan cannot be discharged, Chapter 7 bankruptcy can still help a South Florida resident in other ways.


Kingcade & Garcia | A Miami Law Firm