Fact Sheet: New Process for Student Loan Bankruptcy Discharges
There is a new process for the Department of Justice (DOJ) and Department of Education (DOE) to consider student loan bankruptcy discharge cases. In the event you have not already heard about the announcement from the DOJ back in November, now is a particularly good time to learn about the new process since student loan payments will soon be coming due for borrowers across the state of Florida. The good news is that the new process aims to make the possibility of a bankruptcy discharge easier for student loan debtors even though the “undue hardship” requirement remains. To be clear, the overall law has not changed concerning requirements for a discharge, but the process has changed in favor of student loan debtors who need relief. The DOJ recently provided a fact sheet about its new process. The experienced West Palm Beach bankruptcy attorneys at our firm can provide you with more information about the key points and what you should know.
DOJ Can Support Discharge in Certain Bankruptcy Cases
Debtors who file for bankruptcy and want to have their student loans discharged should know that they will still need to go through an adversary proceeding and will still need to prove that continuing to repay their loans would be an “undue hardship” for them. However, the process for proving that in the adversary proceeding will be much easier based on the DOJ’s new process. As the DOJ explains, “while the bankruptcy judge makes the final decision whether to grant a discharge, the Justice Department can play an important role in that decision by supporting discharge in appropriate cases.”
How will the DOJ support discharge? The DOJ and the DOE will review streamlined information submitted by the debtor in a straightforward “attestation form,” will “apply the factors that courts consider relevant to the undue-hardship inquiry, and determine whether to recommend discharge.” Even in circumstances where the DOJ finds that a complete discharge is not appropriate, it can support a partial discharge.
DOJ Will Use Three Specific Categories for Assessing “Undue Hardship”
When the DOJ reviews a debtor’s attestation form, it uses the following categories to assess whether requiring the debtor to continue paying their student loans would impose an undue hardship:
- Debtor’s present ability to pay (taking into account debtor’s expenses and income);
- Debtor’s future ability to pay (taking into account retirement age, presence of a disability or chronic injury, unemployment history, education level, and more); and
- Good faith efforts (taking into account evidence of the debtor’s good faith efforts in the past to manage their student loans by seeking income-based repayment and other options).
The information used to make the assessment will be included in the attestation form the debtor fills out. If the DOJ believes requiring the debtor to continue to pay student loans would impose an undue hardship (or a partial one), the DOJ will recommend a discharge (or partial discharge) to the bankruptcy court.
Contact a West Palm Beach Bankruptcy Attorney
Floridians with student loans may be able to have those loans discharged in a personal bankruptcy case. One of the experienced West Palm Beach bankruptcy lawyers at Kelley, Kaplan & Eller can talk with you today about filing for bankruptcy and taking steps to have your student debt discharged.