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What’s New? Discharge Student Loans For Undue Hardship

Discharge student loan blog

What’s changed?

The U.S Department of Justice issued revised protocols in November 2022 for its interpretation of the undue hardship standard for discharge of federal student loans.   While the official definition of “undue hardship” as applied under 11 U.S.C. Sec. 523(a)(8) (the so called “Brunner test”) has not been replaced, the manner in which the Department of Justice in collaboration with the Department of Education reviews these applications appears to have been liberalized somewhat.

Who can seek the discharge?

Under the revised standards, a debtor in Bankruptcy can file an adversary proceeding complaint seeking the discharge  (full or perhaps partial) of the students loans alleging that continuation of the required payments would pose an undue hardship.  A formal Attestation is then submitted to the Department of Justice laying out all of the particulars of the loans, the Debtor’s circumstances and the alleged hardship. Based on certain criteria, the Department of Justice may enter into a Consent Order for the full or partial discharge of these loans.

What are the requirements?

The specific requirements for consideration by the Department of Justice are the following;

  •       Debtor lacks the current ability to pay the student loans
  •       Debtor’s inability to pay is likely to persist in the future
  •       Debtor has made a good faith effort to repay the student loans

 The demonstration of the above are fact sensitive and based in large measure upon IRS guidelines for required and discretionary spending.   We have engaged with the Stretto DMM Portal to assist in reviewing these formulas to create an in depth analysis for each prospective adversarial proceeding and determine the likely probability of success on such applications – prior to incurring the cost and effort to filing  such an adversarial proceeding.    

What are the next steps?

We will have our clients obtain a student loan aid report from www.studentaid.gov which can then be uploaded into the portal.  We will then do a thorough analysis of the Debtor’s budget and expenses so that we have as much viable information to  review the likelihood of success- and then submit to the Department of Justice in the Attestation. 

 We encourage all potential debtors with unaffordable student loans to consider this possibility for permanent and essentially life changing relief.  

 Please contact our office to schedule a student loan review.