DOJ and DOE share success after first year of student loan bankruptcy discharge process
On November 16, the DOJ and DOE announced a successful first year of their new student loan bankruptcy discharge process during 2022. The discharge process extinguishes a borrower’s obligation to pay back either some or all of a student loan in bankruptcy based on undue hardship. The DOJ cites two previous standards used by bankruptcy courts to determine if a borrower’s repayment would cause an undue hardship: the Brunner and Totality Tests. The DOJ’s guidance simplified the current standards to enhance “consistency and equity in the handling of these cases” and applies in both Burner and Totality Test jurisdictions. The guide permits a court to grant a discharge if three conditions are satisfied: (i) “the debtor presently lacks an ability to pay the loan”; (ii) “the debtor’s inability to pay the loan is likely to persist in the future”; and (iii) “the debtor has acted in good faith in attempting to repay the loan.”
The DOJ reported the success of their new guidance with several findings: (i) there were 632 cases filed in the first 10 months of the new process, a significant increase from recent years; (ii) this process was used by 97 percent of all borrowers; (iii) 99 percent of borrowers received either full or partial discharges; and (iv) two bankruptcy courts adopted this process. The DOJ is optimistic that some or all these trends will continue.