Can New Guidance for Discharging Student Loan Debt in Bankruptcy Help You?

On November 17, 2022, the United States Department of Justice (DOJ) issued new guidance for U.S. Department of Education student loan discharge cases filed in Bankruptcy Court. The new guidance is designed to increase fairness in the handling of these types of cases. If you qualify under the new guidance, the DOJ could recommend that you are no longer required to pay back all or part of your student loans.

If you are either currently filing for bankruptcy or considering doing so and have student debt through the U.S. Department of Education, our bankruptcy attorneys can help. Let us help you determine whether you qualify for discharging (or getting rid of) all those pesky student loans that have been weighing you down. Here are some tips on the new guidance around discharging student loan debt in bankruptcy.

How does the new guidance help someone who is trying to get debt relief by discharging their student loan debt?

The new guidance makes it easier for students to get their loans discharged in bankruptcy court. Under current law, there are three things you need to prove in order to have your student loans discharged in Kentucky or Ohio:

  • that you cannot maintain a minimal standard of living if forced to repay the student loans,
  • that you cannot maintain a minimal standard of living if forced to repay the student loans for the foreseeable future, and
  • that you have made good-faith efforts to pay back the student loans in the past.

This is commonly referred to as the Brunner test. While the new guidance does not change the Brunner test, it does make it easier to meet these standards. Streamlining the student loan discharge recommendation process also makes it easier to obtain the information and documentation you need to see if you qualify.

What standards are used to determine your eligibility for a student loan discharge recommendation under this new guidance?

Does the repayment of your student loans directly impact your ability to maintain a minimal standard of living? The DOJ carefully considers various economic factors including personal expenditures, household size, and income when determining your eligibility for student loan discharge.

Under the new guidance, here are some of the factors the DOJ will consider when determining whether you will not have the ability to pay in the future:

  • you are age 65 or older
  • you have a disability or chronic injury impacting your income potential
  • you have been unemployed for at least five of the last ten years
  • you did not obtain the degree for which the loan was procured
  • your loan has been in payment status for at least ten years (not including while in school)

Finally, the DOJ will be looking for any of the following to determine whether you made a good-faith effort to pay back your student loans in the past:

  • making a payment
  • applying for a deferment or forbearance (other than in-school or grace period deferments)
  • applying for an Income-Driven Repayment Plan
  • applying for a federal consolidation loan
  • responding to outreach from a servicer or collector
  • engaging meaningfully with the Department of Education or their loan servicer, regarding payment options
  • engaging meaningfully with a third party they believed would assist them in managing their student loan debt

The guidance also recognizes your specific circumstances can also be a factor in determining eligibility for a student loan discharge in bankruptcy.

How can someone who is trying to get a student loan debt bankruptcy discharge start the process?

In order to start the process of discharging student loan debt in bankruptcy, you’ll need to file a petition in Bankruptcy Court. That petition can be filed under any of the following three chapters:

Our experienced bankruptcy attorneys can help you determine which type of bankruptcy fits your situation best.

As part of your bankruptcy proceedings, you are required to file a lawsuit against the U.S. Department of Education alleging that the payment of the student loans would cause you undue hardship.  After your bankruptcy case is filed, you will have to complete a formal statement under oath. This will be used by the Department of Education and the DOJ to determine whether you satisfy the Brunner test. In turn, the DOJ will provide you with your student loan account information including the loan history, loan details, and educational history.

How can I find out if I qualify?

Contact Minnillo Law Group for a free consultation. One of our experienced bankruptcy attorneys will begin by helping you identify what you need to gather to begin this process. These can include wage statements, bank statements, tax returns, and other student loan-related documents.

With Minnillo Law Group by your side, we can guide you through the complicated process of filing for bankruptcy and discharging your student loans.

If you filed (or are considering filing) your bankruptcy in Ohio or Kentucky and want to try to discharge your Department of Education student loans, call us for a free consultation at 513-723-1600.

We are a law firm and a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.