Student Loans and Bankruptcy Guidance: Key Takeaways

For many years, debtors who are struggling with student loans have considered filing for bankruptcy but have been under the assumption that a discharge of their student loans would be unlikely. While discharging student loans has not, historically, been as easy or straightforward as discharging other types of unsecured debt, there have been many misconceptions about the link between student loans and bankruptcy. While the process was a complicated one, it was not a process that many debtors would even attempt. Indeed, data suggests that a small number of bankruptcy filers previously attempted to have their loans discharged given the complexity and costs associated with that process. Now, however, the process for having student loans discharged in bankruptcy has become much easier and more straightforward.

Back in November 2022, the U.S. Department of Justice (DOJ) issued guidance for its attorneys concerning litigation pertaining to student loans and bankruptcy. The overall piece of information to take away from the guidance is this: debtors who are filing for bankruptcy can expect a much more streamlined and clear process for showing that they are eligible to have their student loans discharged in bankruptcy. Within that larger point, there are a couple of important key takeaways. Our West Palm Beach bankruptcy lawyers can say more.

Debtors Must Still Meet the Undue Hardship Requirement 

Prior to the new guidance, debtors who were filing for bankruptcy and seeking a discharge of their student loan debt would need to meet a requirement known as the “undue hardship” requirement, proving elements of a test commonly known as the Brunner test. Yet what was so complicated about this system was not the test itself necessarily, but the process required for it. With the new guidance, the undue hardship requirement still remains, but the process for showing that you pass the test has changed.

Process for Showing Evidence the Undue Hardship Factors Has Changed

According to the new guidance, debtors now submit a 15-page “attestation form” that provides all necessary financial details for the DOJ and Department of Education to determine whether the debtor is likely to meet the undue hardship requirement. If the debtor is likely to meet the requirement, then DOJ attorneys can “stipulate to the facts demonstrating that a debt would impose an undue hardship and recommend to the court that a debtor’s student loan be discharged” if the conditions of the Brunner test have been satisfied.

You Could Receive a Partial Discharge 

Depending upon your financial circumstances, a partial discharge of your student loans (rather than a full or complete discharge) may be recommended. The information you supply in your attestation form will clarify whether repaying all of your student loans, or a portion of them, would constitute an undue hardship.

Contact Our West Palm Beach Bankruptcy Attorneys Today 

If you are struggling with student loan debt, or if you have any questions or concerns about personal bankruptcy, you should get in touch with an experienced West Palm Beach bankruptcy lawyer at Kelley Kaplan & Eller who can help you. Do not hesitate to contact our firm to get started on your bankruptcy case or to learn about your eligibility for having your student loan debt discharged.

Source:

justice.gov/civil/page/file/1552681/download