Discharging Student Loans In Bankruptcy without an Adversary Proceeding

On Nov  17, 2022 the Biden Administration announced a new path to Discharging Student Loan Debt in Bankruptcy, without commencing an Adversary Proceeding (litigation in Bankruptcy Court).  The New York Times has a story on this topic that can be found at https://www.nytimes.com/2022/11/17/your-money/bankruptcy-student-loans.htmlThe new path “outlines a better, fairer, more transparent process for student loan borrowers in bankruptcy,” according to Associate Attorney General Vanita Gupta. Once enacted, the guidance will make it easier for attorneys at the Justice Department and Education Department to identify cases in which Federal student loans may be discharged.The New York Times article states that under the new guidelines, debtors will complete an "attestation form" that the government will use to determine whether a discharge should be recommended for Federal Student Loans. A Debtor will have to demonstrate hardship, such as having expenses that exceed their income or having a mental or physical disability that prevents them from repaying the loan. In such cases, the government lawyers will recommend a full or partial discharge of the debtor's student loans.Student loans can only be discharged under the current system by filing for personal bankruptcy and then filing a lawsuit or adversary proceeding.Adversary proceedings are expensive and difficult to pursue, and according to experts less than 1 percent of personal bankruptcy filers try to discharge their student loans.The attestation form will replace the adversary proceeding for federal student loans, so more debtors will be able to discharge their loans. Shenwick & Associates will close following these developments, and anyone with questions should contact Jim Shenwick, Esq.  [email protected]  212-541-6224