The Department Of Education Has Finally Given Some Guidance On Student Loan Discharge In Bankruptcy

The Bankruptcy Code prohibits the discharge of student debt unless that debt causes an “undue hardship” for the Debtor.  “Undue hardship” is an amorphous term, which is itself problematic when people of limited means are being asked to pay money to seek to discharge debts that they cannot afford.  The Congress put the additional hurdle in front of them of making it hard to know if their efforts are likely to be successful.  The Department of Education has promised for some time to put out guidelines on when it would oppose the discharge of federal student loans (these guidelines have no impact upon private student loans).  If the federal government chooses not to challenge the discharge of a federal student loan, then it will be discharged.  Unfortunately, these guidelines are more in the nature of factors to consider, instead of being hard and fast rules.  Still, guidance is guidance, and there will be cases in which this guidance helps to clarify when it would be prudent to go ahead and seek discharge of a federal student loan.  A link to the new Department of Education guidelines is here.

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