Biden administration eases bankruptcy guidelines for student borrowers

ByDonald L. Leech

Nov 17, 2022

License picture” alt=”The Biden administration has made changes to bankruptcy policies to ensure fair treatment of student borrowers trying to get their debt forgiven. File photo by Bill Greenblatt/UPI | License picture“/>

The Biden administration has made changes to bankruptcy policies to ensure fair treatment for student borrowers trying to get their debt forgiven. File photo by Bill Greenblatt/UPI | License picture

November 17 (UPI) — Student borrowers will have an easier path to paying off their debt through bankruptcy with new policy changes by the Biden administration.

The Ministry of Justice announcement new guidelines for granting bankruptcy to people with student loan debt, in coordination with the Ministry of Education. The announcement says the updated policy will “provide consistent treatment” for borrowers seeking to discharge their debt through bankruptcy.

The bankruptcy process will take into account the difficulties faced by debtors on the basis of the information provided by them. Their ability to pay or to pay in the future, and good faith efforts to earn an income, manage their finances and repay their loan will weigh in the decision to discharge the debt. Ultimately, the decision to grant bankruptcy always rests with a bankruptcy judge.

Debtors will have the opportunity to present evidence of their financial hardship. If they are able to prove that their situation justifies the possibility of getting rid of their debt, the judge can declare them bankrupt.

“Today’s guidance outlines a better, fairer and more transparent process for student borrowers in bankruptcy,” Associate Attorney General Vanita Gupta said. “This will make it easier for Department of Justice lawyers to identify cases in which we can recommend the release of a borrower’s student loans. We are grateful to the Department of Education for their partnership in developing these guidelines.”

Before the guidelines changed, it was rare for a student borrower to obtain relief through bankruptcy. A 2020 Duke Law Journal study found that approximately 250,000 borrowers files the balance sheet each year. Only about 300 have seen their debt paid.

The announcement is a victory for people seeking student loan relief after a setback earlier in the week. A federal judge in Texas decided to block the Biden-Harris student debt relief plan on Monday. US Education Undersecretary James Kvaal filed a stay of injunction against the decision, arguing that denying borrowers the opportunity to receive $10,000 to $20,000 in debt relief will have serious ramifications. These offshoots include an expected swath of upcoming delinquencies.

Kvaal applauded the change in bankruptcy policy.

“Congress may have set a higher bar for granting student loan discharge in bankruptcy, but in practice that bar has become very difficult for deserving borrowers to break,” Kvaal said. “After decades of inaction in Washington, our team at the Department of Education was determined to partner with the Department of Justice to develop clearer, fairer, and more practical standards to guide recommendations for cancellation. student debt during bankruptcy proceedings.