Tuitions in the United States are higher than ever before, and individuals who graduated within the last ten years are facing large amounts of student loan debt. For those already struggling with additional debts, student loans with high interest rates can push some people to the point of needing debt relief. With the additional financial stresses of the current pandemic times, many people are turning to bankruptcy as a source of government-regulated debt relief. At Behm Law Group Ltd., we can help you find long-term financial stability and debt relief in Redwood Falls, MN, and the surrounding area by filing for bankruptcy.
While student loans are typically exempted under 11 U.S.C. § 523(a)(8) from the general discharge awarded at the end of the bankruptcy process, with some rare exceptions, there may be some changes as to how student debt is treated in bankruptcy due to a potential Covid-19 relief act.
The many lingering effects, both medical and financial, of the peak of the coronavirus pandemic and subsequent shutdowns are still being recognized and processed by the U.S. government, and acts like the potential Covid-19 Student Loan Relief Act might be put in place until national health and economic conditions are more stable. The initial CARES Act of March 2020 put many other benefits into place, including stimulus checks and additional federal unemployment, but now that much of that first act is coming to a close, new legislation will likely be enacted to continue addressing the severe economic effects of the pandemic.
For now, those with federal or private student loans looking for debt relief through bankruptcy may be able to have those loans discharged depending in a few specific circumstances. Primarily, discharge of student loans in bankruptcy is only available to filers who have been directly economically affected by the coronavirus shutdown. This means:
Your income was significantly reduced because of Covid-19. This reduction must be a certain percentage, depending on your prior income. Qualifying reductions of income include:
- 20% reduction for those earning $75,000 or less;
- 30% reduction for those earning $75,000 to $125,000;
- 40% reduction for those earning $125,000 or more.
Your household’s primary income earner passed away during the pandemic shutdowns. The timeline for the period this rule covers will be outlined more specifically in the legislation’s details.
You were permanently disabled during the shutdown/pandemic. Again, the timeline will have more specifics for qualifying dates in the legislation’s details.
While the requirements of the potential Covid-19 Student Loan Relief Act are highly limiting, the legislation could open the door for many more people struggling financially to benefit from student loan discharge in addition to the discharge of the other usual debts included in a bankruptcy.
To learn more about how the new stimulus legislation might affect your bankruptcy case, more about qualifying for student loan discharge, or more about how filing for bankruptcy can be an effective source of debt relief in Redwood Falls, MN, and the surrounding area, contact Behm Law Group Ltd. at (507) 387-7200 or stephen@mankatobankruptcy.com.
