Traditional Process For Discharging Student Loans Versus New DOJ Guidance Standards

With new guidance concerning the discharge of student loan debt from the U.S. Department of Justice (DOJ), it may be easier for debtors to discharge student loans in bankruptcy. The new guidance from the DOJ does not change the process for seeking a discharge of student loan debt in bankruptcy. Rather, it clarifies certain standards and recommends certain actions that are designed to make it easier for debtors to seek a discharge of their student loans in a bankruptcy case and to be eligible to have those student loans discharged. Our West Palm Beach bankruptcy lawyers want to provide you with more details about the traditional process through which a debtor seeks to have student loan debt discharged, and how that process will work with the DOJ’s new guidance in mind.

Process for Having Student Loan Debt Discharged in Bankruptcy Before New Guidance 

What did the old, or traditional, process look like for seeking to have student loan debt discharged in bankruptcy? Generally speaking, this was the process that debtors could expect if they were filing for bankruptcy and were attempting to have their student loan debt discharged:

• Debtor files for bankruptcy under Chapter 7, Chapter, 13, or Chapter 11 in some cases;
• After filing a bankruptcy petition, debtor files an adversary proceeding against the student loan lender under Rule 7003 of the Federal Rules of Bankruptcy Procedure;
• As part of the adversary proceeding, the debtor must file a summons and complaint;
• Debtor must have the summons and complaint served on the student loan lender;
• Debtor should expect for the adversary proceeding to be tracked as a separate legal proceeding within their bankruptcy case;
• Process for the adversary proceeding will continue, including the discovery phase and settlement, and if necessary, going to trial.

Even when a debtor has attempted to have student loan debt discharged in a bankruptcy case and through the complicated process of the adversary proceeding, the burden of proof required — in the tests that are applied to determine whether the debt is dischargeable — has typically been difficult for debtors to meet. In addition, debtors who are filing for bankruptcy may not be able to afford to go through the adversary proceeding that is required.

How the Process Will Change with the New Guidance 

It is important to be clear that the overall process for seeking a discharge of student loan debt will not change. However, some elements of the process will be a bit different, enabling more debtors to seek a discharge of student loan debt in bankruptcy and to obtain a discharge. The process based on the new guidance will look something like this:

• Debtor files for bankruptcy under Chapter 7, Chapter, 13, or Chapter 11 in some cases;
• After filing a bankruptcy petition, debtor files an adversary proceeding against the student loan lender under Rule 7003 of the Federal Rules of Bankruptcy Procedure;
• DOJ will obtain details of the debtor’s student loan history from the Department of Education;
• Debtor will submit an attestation form (with details about their student loan information and current financial circumstances); and
• DOJ will assess the debtor’s circumstances and make a recommendation regarding the discharge of the debtor’s student loan debt.

Contact a Bankruptcy Lawyer in West Palm Beach

 If you have questions about discharging student loan debt in bankruptcy, you should get in touch with the experienced West Palm Beach bankruptcy lawyers at Kelley Kaplan & Eller for assistance.

Sources:

law.cornell.edu/rules/frbp/rule_7003

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