February 15, 2024 — Issue Brief

Published 12/12/2022; Updated 2/15/24

A new Guidance from the Department of Justice (Department), issued in coordination with the Department of Education (Education), has the potential to change bankruptcy practice dramatically. Until now, attorneys have not thought of bankruptcy as a way to help clients struggling with student loan debt. If the Guidance is implemented as intended, however, more bankruptcy debtors will be eligible for discharge of their student loans. Attorneys will need to become familiar with its terms in order to evaluate their clients’ chances of obtaining an undue hardship discharge.

The Guidance recognizes that “some debtors have been deterred from seeking discharge of student loans in bankruptcy due to the historically low probability of success and due to the mistaken belief that student loans are ineligible for discharge.” Another barrier to relief acknowledged by the agencies is the “cost and intrusiveness” of litigating an adversary proceeding. The Guidance is intended to redress these concerns so that discharges are more readily obtained, by 1) to setting “clear, transparent, and consistent expectations” for discharge, 2) reducing burdens on debtors by simplifying the process, and 3) increasing the number of cases in which a settlement is offered.

The Guidance is accompanied by two attachments: Attachment A – an Attestation form that debtors will submit that includes information used to evaluate a settlement, and Attachment B – a Sample Scenario that is a sample filled-in Attestation form based on a hypothetical case. Another version of this article that explains how to complete the Attestation form in a ten-step process is available here on NCLC’s digital library.

Soon after the Guidance was released, in January 2023, the Department issues an updated Attestation and Sample Scenario. While many of the changes were technical corrections, several changes made the Attestation more consistent with the Guidance, and others may have a substantive impact. These changes will be noted and discussed in this article.