STUDENT LOAN FORGIVENESS IN BANKRUPTCY COURT
For well over twenty years, bankruptcy filers in South Carolina have not been able to discharge or seek forgiveness of their student loans. This is mostly due to national case law that has interpreted the bankruptcy statutes very narrowly. The 4th Circuit has even made it harder for bankruptcy filers in South Carolina with its recent student loan decisions.
The good news for present or future bankruptcy filers in South Carolina, recent guidance from the United States Department of Justice appears to make it significantly easier for a bankruptcy filer who meets certain elements to discharge all or a portion of their Federal student loans. Some of the factors the Department of Justice will look at to determine if the student loans should be discharged include: disposable income, assets, good faith attempts to pay student loans, and future prospects of employment.
STUDENT LOAN PROCEDURE
The procedure to discharge student loans in Bankruptcy Court will be the same as prior years. A bankruptcy petitioner will first file the bankruptcy petition. Next, a lawsuit or “adversary proceeding” will be filed seeking to discharge the student loans. Unlike prior years, the Departnent of Justice has annotated guidance on a simpler procedure to provide the Department information in a more efficient manner than the usual discovery method. Recent guidance will allow petitioners in both Chapter 7 and Chapter 13 bankruptcy cases to file for student loan discharges. The integral component for the Department of Justice to expedite the discharge process will be the “attestation form“. This form will seek the bankruptcy petitioners income and other relevant information to help the Department make a decision. It is important the petitioner fill this form out accurately and completely to avoid delays or denials.
One final note about the student loan adversary proceeding process, even if the Department of Justice approves a total or partial student loan discharge, it is only a recommendation to the Bankruptcy Court. The ultimate decision will be the Bankruptcy judge. We are hoping that the two South Carolina Bankruptcy judges follow the Department of Justice recommendations. As of December 16, 2023, there have been no student loan adversary cases filed in South Carolina since the new Department of Justice guidance have promulgated.
STUDENT LOAN INFORMATION NEEDED
Information that will be helpful for your attorney will include information about all your student loans, loan numbers, addresses of your services, your pay history on each loan, any forbearance or deferments, and any prior attempts to work with your servicer to include IDR repayment plans.
To determine if you are a candidate for your student loans to be discharged in bankruptcy, feel free to call us at one of our locations in South Carolina to set up a free consultation. We have offices in Columbia, Florence, Rock Hill, Charleston, and Greenville.