Bankruptcy is becoming an option for more people who are dealing with student loan debt. The Biden administration recently announced changes that would make it easier to discharge these loans in bankruptcy.
The changes set specific requirements for you to prove you're dealing with economic distress.
The government will consider whether your expenses equal or exceed your income.
It will also assess if your inability to pay will continue in the future. The new process is supposed to be more transparent.
“In the form, there's basically, along with other information, there's 10 boxes,” Christie Arkovich, a bankruptcy attorney, said. “And so the theory is that the more boxes you check, the more likely you would be entitled to a discharge. And the boxes are things like you're older, you're over 65, you have health conditions, a dependent has health conditions, you're not able to make much money, you know, to maintain a living standard plus pay the student loans.”
The changes should make it easier for people to get their federal student loans discharged.
It was nearly impossible before, Akrovich said.
“The people who are reaching out to us right now for bankruptcy are really being pressured by increasing cost of living through inflation, and so forth,” she said. “And It's not that they maybe owe any one big amount, but when you look at it all together, they just can't get their head above water, so those are good candidates for bankruptcy.”
She says you also need to ensure you don't have assets you would otherwise lose in bankruptcy, like a savings account or equity in a car.
She also says bankruptcy isn't a good option for people who may be helped by another government program.