Cancel Student Loans In Bankruptcy? You cannot qualify

Can you unload your student loans bankrupt ? A new proposal says yes, but not everyone is eligible.

Here is what you need to know.

Student loans

Representative Mary Gay Scanlon (D -PA) presented news legislation today, it would make it easier for you to break free from student loans in bankruptcy if you are in financial difficulty and have been affected by Covid-19. Here’s the good news: The COVID-19 Student 5 Loan Relief Act of 2020 would apply to both private student loans and federal student loans, and be available to all Americans affected by Covid-19.

Student loan waivers: the fine print

Now here is the fine print: you may not be eligible for your bankruptcy student loan discharge under this proposal. According to the bill, to be eligible:

  1. your income has been reduced due to the Covid-19 pandemic; Where
  2. the main income earner in your family has died; Where
  3. you have become permanently disabled

Now, let’s break down the first requirement based on the language of the invoice. The legislation imposes a drop in income due to Covid-19. What does it mean? This is what the bill says. It is not enough that your income has simply decreased. More specifically, to be eligible for the discharge of your student loans in the event of bankruptcy

If you earn less than this pre-tax income … your income must drop by at least this percentage …

  1. at least 20% decrease
  2. $ 75,000 – $ 125,000 Income: at least 30% decrease
  3. $ 125,000 + income: at least 40% decrease

In addition, the relevant period “begins on January 21, 2020 and extends up to 60 days after the duration of the Covid-19 emergency or the duration of the Covid-19 epidemic or following the COVID-19 epidemic ”. Even though you would not qualify under this specific proposal, you may still be able to pay your bankruptcy student loans through the ordinary course based on your financial situation. Traditionally, unlike mortgages or credit card debt, student loans cannot be discharged in bankruptcy. However, there are exceptions, especially if certain conditions regarding financial hardship are met.

Cancel student loan debt

This latest bankruptcy legislation is part of an ongoing effort to provide more student loan relief, especially because of the Covid-19. For example, Student Debt Crisis, one of the leading non-profit student loan advocacy organizations, recently sent Senator Elizabeth Warren (D-MA) a petition to cancel the student loan with $ 1.2 million. of signatures. Warren, who proposed canceling student loans to 95% of Americans, has been a proponent of canceling student loans and canceling student debt. Scanlon’s legislation would make things easier by amending Chapter 11 of the United States Bankruptcy Code, although the requirements to qualify may be difficult for some. Cancellation of student loans has been a hot topic in Congress, especially in the wake of the Covid-19 pandemic. For example, former Vice President Joe Biden reiterated his support for student loan cancellation and support for the discharge of student loans in bankruptcy. Other members of Congress have proposed legislation to cancel student loans, although none has become law.

Will student loans be included in the new stimulus?

May be. This bill or a similar bill to cancel student loans in bankruptcy is unlikely to be included in the new stimulus package. The new stimulus package could be introduced next week. Currently, the focus is on second dunning check, state and local aid, unemployment benefits or one return to work bonus and civil liability protection due to Covid-19 for companies. However, don’t expect student loan cancellation to be included. However, Congress can extend student loan relief under the Cares Act, or Congress could allow student loan relief to expire as expected on September 30, 2020. That said, student loans have not been the focus of Republicans (who control the Senate) among other high priority issues. There is bipartisan support to make student loans dischargeable in bankruptcy, but there may not be a consensus to act before the next Congress election.

Resources: Student loans

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