Student Loan Debts Can Now Be Discharged in Bankruptcy

At long last, the Department of Justice has now published new regulations to make the path of having federal student loan debts discharged in bankruptcy easier to navigate.

Undue Hardship

Student loan borrowers must still show that paying off the debt would cause them “undue hardship,” but the process of showing undue hardship has been greatly simplified. This could not have come at a better time, as federal student loan payments are set back up again at the start of the year.

Undue Burden

Rather than go through an often costly, risky, and time-consuming process of filing an adversary proceeding against a well-staffed student loan lender within a bankruptcy filing and having to litigate whether a continued student loan obligation would pose an “undue burden,” debtors will be able to submit paperwork to the Department of Justice so that they can evaluate whether that obligation would pose an undue burden.  The standard for what would constitute an undue burden will also be considerably relaxed to a more common sense standard.

The Department of Justice and the Department of Education will review the information provided by the debtor and determine whether to recommend that the bankruptcy court discharge the borrower’s student loan debt.

This news is a significant victory for debtors.