What Is the Bankruptcy Discharge Process for Student Loan Borrowers?

group of graduates

In November 2022, the Department of Justice, alongside the Department of Education, announced that there will be a new process for handling cases regarding the discharge of federal student loans in bankruptcy. If you are a student loan borrower, follow along to find out what guidance the Associate Attorney General distributed for the bankruptcy discharge process and how a proficient Rockland County bankruptcy attorney at The Law Offices of Allen A. Kolber, Esq., can help determine what this means for you.

What is the purpose of the new bankruptcy discharge process?

Notably, the new bankruptcy discharge process is to mainly serve the following functions:

  • It will ensure that there is consistent treatment of the discharge of federal student loans.
  • It will reduce the burden of student loan borrowers from having to pursue bankruptcy proceedings.
  • It will better identify cases where bankruptcy discharge is appropriate.

The Associate Attorney General Vanita Gupta was quoted saying, “Today’s guidance outlines a better, fairer, more transparent process for student loan borrowers in bankruptcy. It will allow Justice Department attorneys to more easily identify cases in which we can recommend discharge of a borrower’s student loans. We are grateful to the Department of Education for its partnership in developing this guidance.”

What else is involved in the new bankruptcy discharge process for student loans?

More specifically, there are now higher standards when it comes to discharging student loan debt via bankruptcy. That is, borrowers must prove to the bankruptcy judge that they will suffer an undue hardship unless their student loan debt is discharged. But on the flip side, this new process helps borrowers easily identify whether they meet the criteria to get their student debt discharged which they would not have realized otherwise.

In addition, the bankruptcy judge will receive comprehensive recommendations from the Justice Department without the need to conduct lengthy investigations. With that being said, the undue hardship analysis will be conducted as follows:

  1. The bankruptcy courts will review the borrower’s past, present, and future financial circumstances.
  2. The government will assess the borrower’s discharge request by reviewing data from the Department of Education data and by a new borrower-completed attestation form.
  3. The Justice Department and the Department of Education will review the information provided and apply the factors that courts consider relevant to the undue-hardship inquiry to determine whether to recommend that the bankruptcy judge discharge the borrower’s student loan debt.

Importantly, the Department of Justice and the Department of Education will continue to monitor how this new process plays out and determine whether edits are needed. If you require more information regarding this update, especially if you believe that you qualify for this relief, do not hesitate in consulting with a talented Rockland County bankruptcy attorney today.