Get the Latest Information: Federal Student Loans and Bankruptcy
Until recently, bankruptcy law made it difficult to have student loans discharged through bankruptcy, and debtors could only be eligible by going through a lengthy adversarial process and presenting significant evidence to prove that continuing to pay their student loans would impose an “undue hardship” on them. The difficulty of having student loans discharged in bankruptcy led to the common bankruptcy myth that student loan debt was non-dischargeable in a bankruptcy case. While the U.S. Bankruptcy Code does cite student loan debt as an exception to discharge, the “undue hardship” test allows debtors to overcome that exception in order to have student loans discharged in a personal bankruptcy case.
Currently, the process is significantly easier than it used to be. While debtors still must prove that continuing to pay their student loans would impose an undue hardship, the U.S. Department of Justice (DOJ) issued a memo in November 2022 that detailed a new process for meeting that requirement. The following is some of the latest information about discharging student loans in bankruptcy. If you are ready to file or to consider filing, you should get in touch with a West Palm Beach bankruptcy lawyer who can help.
Justice Department Has a New Process
As we noted above, one of the most important things to know is that the Justice Department is using a new process it outlined back in its November 2022 memo. Currently, in conjunction with the Department of Education, the Justice Department will consider information supplied by the debtor to assess the undue hardship factors and to determine whether the student loan debt should be discharged. After its assessment, the Justice Department can recommend a full or partial discharge of student loans to the bankruptcy court.
Assessment Will Be Based on Undue Hardship Factors
The “undue hardship” requirement still must be met, but the Justice Department will now be assess whether a debtor likely meets the requirement by considering the following three factors:
- Present ability of the debtor to pay their student loans;
- Future ability of the debtor to pay their student loans; and
- Good faith efforts of the debtor to pay their student loans or to seek alternative options for making payments manageable (such as forbearance or income-driven repayment plans).
Debtor Will Supply All Information in One Place: the Attestation Form
Rather than having to provide a range of different evidence in a long and complicated adversary proceeding, the proceeding will now involve the debtor filling out and submitting an attestation form. The attestation form is a 15-page form that will contain relevant information that will allow the Justice Department to assess the factors listed above.
Contact Our West Palm Beach Bankruptcy Lawyers
Understanding the bankruptcy process in general can be complicated, and determining how the process works when you are trying to have federal student loans discharged can be even more complex. You should know that an experienced West Palm Beach bankruptcy attorney at Kelley, Kaplan & Eller can talk with you today about your circumstances and can answer any questions you have about discharging student loans through bankruptcy. We routinely assist individual debtors with bankruptcy cases involving student loans, and we can begin working with you today on your case.