New DOJ Guidance For Discharging Student Loans In Bankruptcy
The U.S. Department of Justice (DOJ) recently announced new guidelines related to the discharge of student loan debt in bankruptcy, developed in coordination with the U.S. Department of Education. On November 17, 2022, a memorandum was released to provide guidance “regarding requests to discharge student loans in bankruptcy cases.” It is important to know that the guidance does not involve changing the rules for discharging student loans in bankruptcy, but rather clarifies what should take place in a bankruptcy case in order for student loan debt to be discharged.
Clarifying the Debtor’s Eligibility to Have Student Loans Discharged in Bankruptcy
In the memorandum, the DOJ explains that student loan debt should be discharged if there are facts demonstrating all three of the following:
- Debtor presently lacks an ability to repay the loan;
- Debtor’s inability to pay the loan is likely to persist in the future; and
- Debtor has acted in good faith in the past in attempting to repay the loan.
These are the elements that are required to discharge student loans in bankruptcy because they show that the debtor has met the “undue hardship” test. As the memorandum clarifies, debtors will be asked to complete an attestation form that provides information about the debtor’s finances and ability to make student loan payments.
How DOJ Attorneys Should Handle Requests to Discharge Student Loans in Bankruptcy
The new guidance is important because it clarifies how DOJ attorneys should assess debtor requests to discharge student loans in bankruptcy. The memorandum indicates that DOJ attorneys “should stipulate to facts necessary to demonstrate undue hardship and recommend discharge where the debtor provides information in the Attestation (or otherwise during the adversary proceeding) that satisfies the elements of the analysis” cited above.
The memorandum underscores that many debtors have not even tried to have student loans discharged in bankruptcy because of their assumptions about the unlikelihood of a discharge, and because many debtors have been dissuaded from trying to have student loans discharged. The guidance is intended to encourage debtors to seek a discharge of student loans and to allow eligible debtors to have their student loans discharged.
Goals of the Guidance
The memorandum clarifies that the new guidance is intended to promote three primary goals, which are cited in the memorandum as follows:
- To set clear, transparent, and consistent expectations for discharge that debtors understand regardless of representation;
- To reduce debtors’ burdens in pursuing an adversary proceeding [against the student loan company or lender] by simplifying the fact-gathering process [including the attestation form and other financial documents]; and
- Where the facts support it, to increase the number of cases where the government stipulates to the facts demonstrating a debt would impose an undue hardship and recommends to the court that a debtor’s student loans be discharged.
As you can see from the language cited above, the aim of the new guidance is to allow more debtors to discharge student loan debt in bankruptcy through the current rules.
Contact a West Palm Beach Bankruptcy Lawyer
Our West Palm Beach bankruptcy attorneys at Kelley, Fulton, Kaplan & Eller can provide you with more details about the information contained in the memorandum and how the guidance may impact bankruptcy cases where the debtor is seeking to discharge student loans.