Summary of the Department of Justice’s New Process for Student Loan Bankruptcy Discharge Cases

Exciting news for those struggling with student loan debt! Every year, people going through bankruptcy hope to start fresh by discharging their student loan debt. The challenge is that Congress requires a higher standard for discharging student loans than other forms of debt. This means that those seeking to discharge student loans must prove that paying them back would cause an "undue hardship" through a separate process. However, even though the bar is higher, it is not impossible to overcome for those who genuinely cannot afford to pay their student loans.

The Department of Justice and Education are teaming up to simplify the bankruptcy process for discharging federal student loans. They have implemented a new process that will make it easier for you to navigate through bankruptcy and support discharge in cases where it's appropriate. No more burden on debtors and the Department attorneys will have an easier time identifying cases where discharge should be granted. Get ready to say goodbye to student loan debt!

The Justice Department has crafted a new process to help debtors requesting a discharge of their student loans. In this process, debtors will fill out an attestation form providing information to assist the government in its assessment. Thereafter, the Justice Department will review the information, in consultation with the Department of Education, to determine whether to recommend a discharge. Even when the relevant factors may not support a complete discharge, the department will recommend a partial discharge where appropriate. Justice Department attorneys will scrutinize the undue-hardship factors methodically to ensure the process is fair and impartial.

Justice Department attorneys will assess the undue-hardship factors in the following manner:

Present Ability to Pay – A team of Justice Department attorneys utilizes established IRS standards and information provided by you, the debtor, to evaluate your financial capability to pay. By carefully examining your expenses and comparing them to your income, they will determine whether you can pay.

Future Ability to Pay – The Department takes a serious look at your financial situation to determine whether you can pay and will continue to be able to pay off your debt. Certain factors, such as retirement age, disability or chronic injury, protracted unemployment history, lack of a degree, or extended repayment status, are considered. However, if these factors aren't present, the Department attorney will dive deeper and assess whether your present inability to pay is likely to persist. It's not just about paying off the debt now; it's about ensuring you are financially stable in the future.

Good Faith Efforts – The Department is taking a serious look at borrowers' efforts to make payments and manage their finances, focusing on objective criteria that illustrate good faith. Attorneys will dig into the facts, asking questions like whether or not the borrower reached out to the Department or their loan servicer and exploring other evidence to support good intentions. Being late on payments in the past won't automatically disqualify borrowers from relief, nor will skipping an income-driven repayment plan without good reason. This can help borrowers prove they've acted in good faith, earning them a better chance at finding relief from student loan debt.