Recently, the U.S. Department of Justice and Department of Education reviewed their approach to student loan treatment in bankruptcy. This is different from the admistration’s forgiveness program and reflects a new attitude toward a borrower’s financial circumstances and the burden of student loan debt on people’s budgets.
It is commonly believed that student loan debt is not a debt that goes away in bankrupcty. The type of debts that remain after bankruptcy are referred to as “non-dischargeable debt”. Historically, student loans have been dischargeable only under certain strict circumstances and the borrower carried a very high burden to gain that discharge. This burden is and was referred to as a “showing of hardship”. Through a process similar to a lawsuit, the individual in bankruptcy had to prove they made past effort to pay, could not currently pay, and would not be able to pay in the future. Often times, the borrower had to practically demonstrate permanent disability and persuade the court they made significant effort to pay in the past.
New guidance from the U.S. Department of Justice and the Department of Education have directed the U.S Attorneys to relax the assessment of when a borrower’s repayment would amount to a hardship. Actions taken by borrowers that demonstrate an effort at payment now include the consideration of circumstances like unemployment, under employment, responding to collectors, and the practicability of payment in the first place, to name a few.
Further guidance has relaxed the Department’s assessment of hardship as it relates to current and future ability to pay. In short, the directive to the U.S. Attorneys is to take a compassionate look at a borrower’s ability to care for a family, the use a borrower was able to make of the education that led to the debt, and the resulting burden of the student loan debt.
Through this new take on an old process, there is hope our office can team up with the government to provide our clients needed relief. Keegan and Company Attorneys has put into action several considerations, details and procedures to explore this new development to the benefit of our clients. Call our office to set up a free consultation to get answers to your questions and allow us to assess your circumstances. This is an area of cutting edge law and we are excited to be on the front lines of this exciting development!