If you’re struggling with student loan debt and considering bankruptcy, there may be good news on the horizon. The Biden administration, in close coordination with the Department of Justice (DOJ) and the Department of Education (ED), has announced a new process that may make it easier for you to discharge your federal student loans in bankruptcy. This significant policy shift is designed to ensure more consistent treatment of student loan discharges, reduce the burden on borrowers, and more easily identify cases where discharge is appropriate.

Understanding the New Process

The new process is a response to the higher bar set by Congress for discharging student loan debt compared to other types of debt. Previously, if you wanted to discharge your student loans through bankruptcy, you had to demonstrate that repaying your loans would cause you “undue hardship”. This often involved a separate “adversary proceeding” and could be a complex and burdensome process.

Under the new policy, the DOJ and ED have introduced a more streamlined process. As a debtor, you will complete an attestation form to assist the government in assessing your discharge request. The DOJ, in consultation with the ED, will review the information you provide, apply the factors that courts consider relevant to the undue-hardship inquiry, and determine whether to recommend discharge to the bankruptcy judge.

Assessing Undue Hardship

The undue hardship analysis involves a review of your past, present, and future financial circumstances. The DOJ will assess the following factors:

  1. Present Ability to Pay: The DOJ will calculate your expenses and compare them to your income using existing standards developed by the IRS. If your expenses equal or exceed your income, they will determine that you lack a present ability to pay.
  2. Future Ability to Pay: The DOJ will assess whether your present inability to pay is likely to persist in the future. Certain factors, such as retirement age, disability or chronic injury, protracted unemployment history, lack of degree, or extended repayment status, will lead to a presumption that your financial circumstances are not likely to change.
  3. Good Faith Efforts: The DOJ will focus on objective criteria reflecting your reasonable efforts to earn income, manage expenses, and repay your loan. For example, they will consider whether you contacted the ED or your loan servicer regarding payment options for your loan. Importantly, you will not be disqualified based on past non-payment if other evidence of good faith exists.

A More Accessible Path to Discharge

This new process is a significant step towards making the bankruptcy system more accessible and fair for borrowers. It reduces the burden on both you and government attorneys, provides a clear path for you to seek discharges, and adds safeguards to promote consistency and predictability.

While the bankruptcy judge still makes the final decision on whether to grant a discharge, this new process provides DOJ attorneys with clear standards for recommending discharge to the judge without unnecessarily burdensome and time-consuming investigations. This could make it easier for you to identify whether you meet the criteria to seek a discharge.

Looking Ahead

The DOJ and ED are committed to ensuring this new process works for borrowers and will continue to monitor how the process plays out on the ground. They will assess the effectiveness of this guidance after the first year and beyond as warranted.

While this new process is a significant step forward, navigating bankruptcy and student loan discharge is still a complex process. It’s always a good idea to consult with a bankruptcy attorney who can guide you through the process and help you understand your rights and options.

How a Bankruptcy Attorney Can Help

A bankruptcy attorney can be an invaluable resource when navigating the bankruptcy process. Here’s how they can assist:

  • Understanding the Process: A bankruptcy attorney can explain the bankruptcy process in detail, helping you understand what to expect at each step.
  • Filing the Necessary Documents: A bankruptcy attorney can help you fill out and file the necessary documents, including the new form for applying for a discharge of student loan debt.
  • Representing You in Court: If your case goes to court, a bankruptcy attorney can represent you and argue on your behalf.
  • Negotiating with Creditors: A bankruptcy attorney can negotiate with your creditors, potentially reducing the amount you owe or arranging a payment plan that fits your budget.

Conclusion

While the process of discharging student loan debt through bankruptcy can be complex, the recent changes in federal policy have made it more accessible for borrowers. By understanding these changes and working with our bankruptcy attorney, you can navigate the process more effectively and potentially find relief from your student loan debt.