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Discharging Student Loans in Bankruptcy — Not Easy, but Possible
New guidance gives troubled borrowers some hope
One of the key challenges around student loan debt is the difficult of discharging this debt in bankruptcy. In many cases, it’s not possible. This means even if you’re in a bad financial situation and bankruptcy is the remedy you seek, you’re still left with student loan debt to pay.
New guidance (effective in December of 2022) from the U.S. Department of Education and the U.S. Justice Department offers some hope — streamlining and simplifying the process for establishing “undue hardship” and possibly discharging that debt.
The National Consumer Law Center (NCLC) has more in this pretty dense piece on the topic aimed at attorneys.
New Process to Discharge Student Loans in Bankruptcy | NCLC Digital Library
Here are a few key takeaways if you hold student debt and are wondering about your options in bankruptcy:
- The previous process was cumbersome and intrusive and made it difficult to meet the hardship standard
- The new process streamlines information gathering and applies a uniform standard to hardship determinations
- Private student loans are NOT included in this guidance
- If a borrower has both private and government held student loans and the hardship burden is met for the government loans, a borrower may use this determination in advocating for discharge of the private loans.
The bottom line: Ask your attorney if the new guidance may offer you some relief.
Remember, this guidance just went into effect, so you may want to direct them to the NCLC article for more information on its application to your case.
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