Undue Hardship Factors for Student Loan Discharge

Anyone in the Oak Park area who is considering personal bankruptcy to have student loans discharged should be aware that there is new guidance that will impact bankruptcy cases involving student loans. If you previously considered bankruptcy in order to have your student loans discharged, you likely came across a range of articles providing information about the difficulty — but not impossibility — of having student loans discharged in bankruptcy. For quite some time, student loans have been famously difficult to discharge in consumer bankruptcy cases, but at the same time, few consumers filing for bankruptcy have actually gone through the process that was required to see if their student loans could be discharged. That process was notoriously complex, costly, and time-consuming, requiring debtors to prove an “undue hardship” requirement.

That undue hardship requirement largely required proving elements of what has become known as the Brunner test to show that continuing to pay student loans would cause an undue hardship. With guidance changes, you know that the undue hardship requirement still exists, but the process for proving (and for the Department of Justice attorneys to assess that proof) has become significantly easier. Our Oak Park bankruptcy lawyers want to highlight the undue hardship factors required to have your student loans discharged and to discuss how the Department of Justice attorneys will evaluate those factors in a given case.

How Will the Undue Hardship Factors Be Evaluated Based on New Guidance?

First, the new guidance requires debtors to complete an “attestation form,” which will include various types of information about the debtor’s financial circumstances and financial history, including the history of student loan payments and attempts at repayment.

Then, most significantly, according to the new guidance, the Department of Justice will play an important role, in consultation with the Department of Education, in reviewing the information that the debtor supplies and “apply[ing] the factors that courts consider relevant to the undue-hardship inquiry, and determin[ing] whether to recommend discharge.” The Justice Department has clarified that, even in cases where a discharge of all student loans is not recommended based on undue hardship factors, the Department may still recommend a partial discharge.

What are the Undue Hardship Factors?

What are those undue hardship factors that the Department of Justice attorneys will be assessing in relation to the information supplied in the debtor’s attestation form? The Department identifies the following three key factors:

• Present ability to pay;
• Future ability to pay; and
• Good faith efforts to earn income and to repay student loans.

To determine the debtor’s present ability to pay, the Department will assess information such as the debtor’s expenses in relation to the debtor’s income. For the future ability to pay, the Department will determine whether the debtor’s current financial situation is likely to continue into the future, taking into account factors like the debtor’s education history, employment history, and physical and mental health. As for good faith efforts, the Department will consider whether the debtor has tried to earn enough money to make student loan payments and whether the debtor has taken steps to enroll in income-driven repayment plans or to seek advice about options for repayment from the Department of Education.

Contact an Oak Park Bankruptcy Lawyer

Are you interested in learning about whether your financial history and circumstances may allow you to have your student loan debt discharged in bankruptcy? One of our Oak Park bankruptcy attorneys can help you. Contact the Emerson Law Firm today.



See Related Blog Posts:

I Want to Have My Student Loans Discharged in Bankruptcy: Now What?

Top Things to Consider About Student Loans and Bankruptcy