Biden Mulls Partial Student Loan Forgiveness

The President might or might not issue an executive order canceling $10,000 in student debt for some borrowers.

This issue is a contentious one for Biden. Many politicians oppose broad student loan relief on cost grounds while others press hard for it regardless of the cost. So, the President is trying the middle ground. “I am considering dealing with some [student] debt reduction,” he remarked at the White House in April 2022. “I am not considering $50,000 debt reduction but I’m in the process of taking a hard look at whether there will be additional debt forgiveness. I’ll have an answer for that in the next couple of weeks.” That move would cost around $245 billion, according to one estimate.

Nevertheless, some of Biden’s fellow Democrats continued to push for additional relief. Sen. Bernie Sanders (I-VT) recently urged the President to purge “all student debt in all of America.”

Complete Student Loan Forgiveness in Bankruptcy

It’s very difficult for college graduates to start life with significant debt, especially if life throws them a few curve balls. Therefore, complete student loan forgiveness is available in Chapter 7 or Chapter 13 bankruptcy. Complete discharge is available to borrowers if they have an “undue hardship.” Federal courts in Illinois and Indiana use the Brunner Rule to define this phrase, as follows:

• Prior good faith effort to repay the loans,
• Permanent or long-lasting financial difficulty, and
• Impossible to repay the loans and live above the poverty line.

In light of the student loan crisis, many observers have criticized the Brunner Rule for its harshness and inconsistencies. If student loan payments sank a debtor below the poverty line, s/he probably doesn’t have a good payment history. So, many states have thrown out the Brunner Rule in favor of a more lenient test.

The bankruptcy courts in Illinois and Indiana haven’t abandoned the Brunner Rule. But, judges are willing to consider some extenuating circumstances in these cases.

A fundamental rule of life is that you don’t get anything unless you ask. So, bankruptcy student loan forgiveness is only available if a Chicago bankruptcy lawyer files a motion to discharge the debt. Advocacy skills are important as well, since as mentioned, the law gives judges some flexibility when they rule on such motions.

Partial Student Loan Forgiveness in Bankruptcy

Advocacy skills only go so far. Frankly, many student loan debtors don’t qualify for 100 percent relief under the Brunner Rule. However, even in these cases, many student loan debtors see much or most of their debt loads vanish.

Most bankruptcy motions, such as motions for turnover and motions for discharge, settle out of court. For example, if Tim agrees to drop his motion for discharge, his student loan lender might forgive 40 percent of his debt. The closer Tim is to the Brunner Rule’s qualifications, the more debt the lender will probably forgive.

If these informal settlement negotiations stall, most judges refer these matters to mediation. During this negotiation session, both sides have a duty to negotiate in good faith. Banks routinely deny relief on technicalities, such as a few points off on a DTI (debt to income) ratio. The duty to negotiate in good faith prevents banks from assuming this harsh negotiating posture. Instead, banks must be willing to make some sacrifices to reach an agreement.

Even if all else fails, relief is still available in Chapter 13 bankruptcy. Chapter 13 stops lender adverse actions, like wage garnishment. Additionally, these debtors can set up more favorable repayment plans. Their lawyers may also negotiate more favorable terms, like a lower interest rate. 

Contact Hard-Hitting Cook County Lawyers

No matter what kind of financial problem you are having, bankruptcy could be a way out. For a free consultation with an experienced Chicago bankruptcy attorney, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.

Resource:

businessinsider.com/biden-student-loan-debt-forgiveness-10000-executive-order-progressives-2022-4