NAICU Washington Update

Guidance Makes Student Bankruptcy Easier

December 02, 2022

The Department of Justice (DOJ) collaborated with the Department of Education (ED) to ease the burden on students who seek to cancel their student loans through bankruptcy. The new guidance issued by DOJ advises its attorneys to consider the facts presented in every case that demonstrate a debt owed by the borrower would impose an undue hardship. To determine if an undue hardship exists, the DOJ would consider the following conditions:  
  • Does the borrower presently lack an ability to repay the loan; 
  • Is the borrower’s inability to pay the loan likely to persist in the future; and 
  • Has the borrower acted in good faith in the past in attempting to repay the loan.
When attempting to meet the first standard, the new guidance will rely on the Internal Revenue Service Collection Financial Standards (the IRS Standards) to assess whether a borrower can presently maintain a “minimal standard of living” if required to repay student loan debt. Regarding the second standard, the DOJ will use presumptions for determining whether an inability to repay is likely to persist in the future.  However, it could still determine that a borrower’s inability to repay will persist even in the absence of such presumptions. Lastly, the new guidance will identify certain objective criteria that evidence a borrower’s good faith.

In an effort for the borrower to prove to the DOJ that they have an undue hardship, the borrower would simply need to attest to this on a form created by the DOJ in conjunction with ED. Both agencies will work together to evaluate the specific circumstances of each case.

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