On Thursday, November 17, 2022, the Justice Department announced new guidelines in coordination with the Department of Education, which may significantly help debtors discharge student loans in bankruptcy. The new guidance aims to make it easier to have federal student loan debt discharged in bankruptcy – a particularly difficult legal process under the previous policy. The move represents the most substantial shift by the federal government on the discharge issue in decades. Read on to learn what these changes to student loans in bankruptcy may mean for you.
Student Loan Debt is Treated Different From Other Dischargeable Debt
Each year, a quarter of a million student loan debtors file for bankruptcy. Of those, fewer than three hundred discharge their educational debt. Under current conditions, it is difficult, if not impossible, for someone to walk away from their federal student debt in a normal bankruptcy proceeding.
Unlike credit card bills, medical bills, and other consumer debts, student loans aren’t automatically wiped away in bankruptcy. Instead, student loan borrowers generally have to show that they have an “undue hardship” which is a challenging legal standard to meet.
How the New Student Loan Bankruptcy Process Works
The U.S. Department of Justice has stated that as part of the undue hardship analysis, courts will review the borrower’s past, present and future financial circumstances. The new process will leverage Department of Education data and a new borrower-completed attestation form to assist the government in assessing a borrower’s discharge request.
The Justice Department, in consultation with the Department of Education, will then review the information provided. From there, they will apply the factors that courts consider relevant to the undue-hardship inquiry and determine whether to recommend that the bankruptcy judge discharge the borrower’s student loan debt.
What Does This Mean for You?
We are excited about the prospect that this new announcement will allow us to help people escape their crushing student loan debt. The purpose of this new process is to ensure that people in bankruptcy seeking relief on their federal student loans are treated more fairly. Additionally, it will provide clearer guidelines about what types of cases would result in a discharge.
Under the new guidelines, debtors, with the assistance of their attorneys, will complete an “attestation form,” which the government will use to help determine whether to recommend a discharge. If debtors meet certain requirements — including having expenses that exceed their income — government lawyers will recommend a full or partial discharge.
Overall, the Biden administration’s policy reforms regarding the treatment of undue hardship bankruptcy cases for federal student loan borrowers are significant. However, it would take an act of Congress to change the bankruptcy code on a broader and more permanent basis. Over 26 million people have provided the Department with the necessary information to be considered for debt relief, and 16 million borrowers have been approved. But court orders are blocking the Department from discharging student loan debt and accepting additional applications.
Next Steps You Can Take
Although it’s not impossible for borrowers to discharge their student loans in bankruptcy, it can be quite difficult. If you’re contemplating filing for bankruptcy, we strongly recommend you schedule an appointment with a bankruptcy lawyer.
Whether you file for Chapter 7 or Chapter 13 bankruptcy, Dantzman & Dantzman is here to answer any questions you may have. Our firm will be able to recommend the best option after we have had a chance to meet and learn about your situation. With nearly 20 years as a bankruptcy law firm, we have key insights on the best steps to take in regard to student loan bankruptcy.
Contact Dantzman & Dantzman today if you’re ready to take the first step at a secure financial future!