The Biden administration’s decision to make it easier to discharge student loans in bankruptcy could offer a new safety valve for debtors who have exhausted other options for getting out from under heavy debt loads, the Wall Street Journal reported on November 21, 2022.
The move, announced November 17, 2022, comes as President Biden’s broader plan for mass student-debt cancellation has been placed in limbo after being blocked by two separate Federal Courts. The proposed plan calls for canceling up to $20,000 in debt for borrowers under certain income thresholds. It would render up to 20 million people free of debt, around half of all student-loan borrowers, if Courts allow it to go forward.
At this point, there is no statutory change, only guidance from the White House to the DOJ and DOE. The guidance sets specific requirements for borrowers to prove that they are experiencing economic distress. Government lawyers will now assess a borrower’s ability to repay their loans based on a set formula — whether expenses equal or exceed a debtor’s income — and other considerations, such as retirement age, disability, educational attainment and job history.
The scope of its impact will depend on how the new rules are applied by Bankruptcy Judges, lawyers and student-loan borrowers across the country in individual bankruptcy cases.
Bottom line, In re Brunner is still the law. One can only hope that more cases go to mediation and end up in case by case settlements with the DOJ, DOE and servicers.
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