The Department of Justice (DOJ), in coordination with the Department of Education, has developed guidelines to enhance consistency and equity in the handling of proceedings involving the discharge of student loans in bankruptcy cases. These guidelines are intended to assist DOJ’s attorneys in evaluating a borrower’s request for discharge of their student loan. Here are some things to know:
1. Goals of the DOJ Guidelines
The DOJ and Department of Education have sought to promote three (3) goals with these Guidelines –
- To set clear, transparent, and consistent expectations for discharge that debtors understand regardless of representation;
- To reduce debtors’ burdens in pursuing an adversary proceeding by simplifying the fact-gathering process. This includes use of an Attestation, and where feasible, information provided through prior submissions to the bankruptcy court and available student loan servicing records; and
- Where the facts support it, to increase the number of cases where the government stipulates to the facts demonstrating a debt would impose an undue hardship and recommends to the court that a debtor’s student loans be discharged.
The Department of Education will prepare a litigation report that will include a record of the debtor’s account history, loan details and educational history, where available. This information will also be provided to the debtor.
2. 11 USC § 523(a)(8)
Section 11 USC § 523(a)(8) of the Bankruptcy Code provides that certain student loans may not be discharged in bankruptcy unless the bankruptcy court determines that payment of the loan “would impose an undue hardship on the debtor and the debtor’s dependents.” Depending upon the Debtor’s jurisdiction, the most common tests for assessing undue hardship are the Brunner Test and the Totality Test. These tests essentially consider the debtor’s “current and prospective financial situation in relation to the educational debt and the debtor’s efforts at repayment.” In re Polleys, 356 F.3d 1302, 1309 (10th Cir. 2004). The DOJ Guidance provides a framework for counsel to evaluate a debtor’s expenses and identify certain factors that evidence a borrower’s good faith regarding repayment.
The New DOJ Guidance provides direction to counsel seeking to advise their clients on the ability to discharge student loan debt through bankruptcy. If you have questions regarding this issue, or any bankruptcy issue, please contact our attorneys.