New Process for dealing with Student Loans in Bankruptcy--Finally
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The Biden administration has created new measures for facilitating destitute borrowers’ ability to discharge crippling federal student loan debt in bankruptcy, generating cautious optimism that much needed financial relief is now more accessible.
The departments of Justice and Education on Nov. 17 announced a new process for bankrupt individuals to discharge student loan debt, wherein the agencies will be newly positioned to help underwater borrowers obtain relief. The government said the move will cut down on “unnecessarily burdensome and time-consuming investigations.”
The move represents the most substantial shift by the federal government on the discharge issue in decades. It comes as legal challenges have stalled the White House’s plan to forgive an estimated $430 billion in outstanding federal student loan debt.
The new policy offers a “realistic” opportunity for people to discharge their loans in bankruptcy “for the first time,” said Edward Boltz, a consumer bankruptcy attorney at the Law Offices of John T. Orcutt.
With a new process that more clearly outlines discharge considerations and instructs the agencies to play a more constructive role, the change could provide more consistency and ease debtors’ burden of demonstrating to a bankruptcy court that their student loans impose an “undue hardship.”
The change is well short of consumer advocates’ greater hope of addressing the nation’s $1.6 trillion federal student loan debt crisis by canceling debt and removing strict discharge standards in the bankruptcy code. But it fulfills efforts initiated during the Trump administration to tackle a particularly confounding issue that made undue hardship standards nearly insurmountable.
Some skepticism remains over how the new policy will be carried out by federal agencies that have traditionally fought student loan bankruptcy discharges. Still, lawyers familiar with the process are excited by the prospect of debtors seeing more meaningful relief.
“It has the potential for being a real game changer in this area,” said John Rao, an attorney with the National Consumer Law Center. https://news.bloomberglaw.com/bankruptcy-law/biden-bankruptcy-shift-eases-path-for-student-loan-discharges.
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