You Need to Know: Department of Education Updates

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The National Association of Consumer Bankruptcy Attorneys (NACBA) has learned from a number of its members that the Department of Education (DOE) and its student loan servicers are kicking out bankruptcy debtors from their income-driven repayment plans. This is happening when debtors file Chapter 7 or Chapter 13 — even if they are current on their student loan repayments.

Even if temporary, this potentially illegal expulsion can upend debtors’ progress toward achieving Public Student Loan Forgiveness or loan cancellation. As a result, NACBA has mobilized to address this situation, and a panel consisting of John Rao, attorney for the National Consumer Law Center; Dr. Rajeev Darolia, associate professor of Public Policy at the University of Kentucky; and Mark Redmiles, assistant director, U.S. Attorney’s Office will discuss this violation of 11 USC 525 — protection against discriminatory treatment — at its annual convention in April.

On a brighter note, the DOE is currently seeking public comment on the standard used to gauge whether borrowers must repay their student loans even after filing for bankruptcy. As it stands, student loans must still be repaid even if other debts have been wiped away in bankruptcy proceedings — unless a high standard of financial hardship can be proven, “undue hardship” are per federal law.

The DOE can’t change the law — Congress would have to do that — but it can issue guidance on how undue hardship is defined and influence how aggressive its attorneys are in litigating those claims. Consumer advocates claim the courts currently interpret the undue hardship standard too strictly — something Rao says discourages people from trying to claim student loan discharges in bankruptcy.

Public comments may be submitted online by May 22 at regulations.gov.

Do you wonder how these developments will affect your student loan status? Call DJ Rausa at (619) 295-3322 to schedule a free initial consultation.

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