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DOJ Issues New Guidance on Discharging Student Loan Debt in Bankruptcy
The Department of Justice (DOJ) Thursday, in coordination with the Department of Education (DOE), issued a new process for individuals trying to discharge their federal student loans in bankruptcy. NAFCU is closely monitoring how this will impact bankruptcy filings, including whether more file to eliminate their student loans and subsequently end up discharging more credit card and auto debt.

In the announcement, the DOJ noted that “the new process will help ensure consistent treatment of the discharge of federal student loans, reduce the burden on borrowers of pursuing such proceedings and make it easier to identify cases where discharge is appropriate.” The intent is to provide relief for borrowers with high federal student loan debt and low income, as well as a streamlined process for making these decisions.

The guidance allows bankruptcy judges to have the final decision whether to grant a discharge. For debtors, they must complete an attestation form addressing undue-hardship factors, such as present and future ability to pay and good faith efforts. The DOJ and DOE will work in consultation to review the information provided and make a recommendation on whether the judge should grant the discharge.

NAFCU will continue to monitor these developments and the impact on credit unions.

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