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Could student loan debt relief keep you out of bankruptcy?

On Behalf of | Nov 9, 2022 | Personal Bankruptcy

The Secretary of Education, Miguel Cardona, recently stated that the companies issuing student loans are “ready to apply” President Biden’s proposed debt relief. However, the 8th Circuit Court issued a temporary stay that holds the student loan forgiveness of as much as $20K per borrower in limbo after six states filed litigation claiming the forgiveness would damage the tax revenues upon which their states depend.

But, since student debt is not covered by bankruptcy filings, can the President’s proposed debt forgiveness still affect debtors struggling under the weight of bills they cannot pay?

It certainly could.

How it could help debtors stay out of bankruptcy

If the loan forgiveness gets the green light from the court, this partial erasure of student loan debt can be used to restructure your shaky financial picture – and here’s how.

Suppose you are paying off $40K in student loans in $250 increments each month. Even though the debt forgiveness would still leave you with remaining debt, your payments would be lower. That would free up more money to pay down the bills you owe for other debts.

Cardona said on Saturday, Nov. 5, that their student loan debt relief plan was “temporarily put on hold {because] of a lawsuit brought by . . .  elected officials in Nebraska, Missouri, Arkansas, Iowa, Kansas, and South Carolina.”

Student loan debt forgiveness may not provide adequate relief

For now, debtors should not be putting all their eggs in one basket regarding their fiscal realities. For many, while helpful, this proposed relief will still leave them trapped in the quagmire of debt. It’s these folks who may need to turn to the bankruptcy courts to get the relief they need from crushing debt overload.


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