For years, student loan debt has been notoriously difficult to discharge through bankruptcy, leaving many Americans burdened with obligations that last for decades and prevent them from living the life they want. The reason for this is a federal law that stops educational debt from being eliminated in a Chapter 7 proceeding unless the filer can demonstrate that they would face undue hardship without the discharge. 

For decades, most courts set a very high bar as to what constituted undue hardship, typically requiring filers to prove that their financial situation was hopeless, with no prospect of improvement. This strict interpretation effectively barred most people from discharging their student loans, even in cases of severe financial distress.

Recently however, there has been a significant shift in how courts are interpreting the undue hardship standard. Several judges have begun to adopt a more lenient approach, focusing on whether the borrower’s financial circumstances are likely to persist, rather than requiring evidence of a complete lack of future earning potential due to permanent disability or some other factor. 

This change has been bolstered by recent guidance from the U.S. Department of Justice. Now, debtors will enter information in an attestation form, which will provide information to be assessed by personnel from DOJ and the Department of Education. From there, the government will issue a recommendation on discharge based on the following three factors:

• Present ability to pay

• Future ability to pay

• Good faith efforts made by the debtor to repay what they owe

While the bankruptcy judge does not have to follow the recommendation, establishing a uniform system and a more flexible interpretation of undue hardship should give filers a better chance of obtaining relief. This could be particularly beneficial for older borrowers, those with chronic health issues or individuals in low-paying careers who are unlikely to see significant increases in their income.

These changes offer new hope to people who have heard for years that discharging student loan debt is impossible in a Chapter 7 bankruptcy. You should not hesitate to consult with a knowledgeable attorney if the student loan payments you owe have overwhelmed you financially. The revised approach to these cases could be the lifeline you need to get back on your feet. 

The Law Offices of James C. Zimmermann advocates in Chapter 7 proceedings for New Jersey residents struggling with student loan debt. To set up a free consultation regarding the new undue hardship standard or any other debt relief matter, please call 973-764-1633 or contact us online. We have locations in Vernon, Wayne, Pompton Lakes, Hackensack and Nutley.