Department of Education Clarifies Undue Hardship Formula

by San Antonio Attorney

The Department of Education has made an effort to help clarify what constitutes undue hardship, to help determine whether a student loan debt can be discharged in bankruptcy.

These factors and criteria are offered as considerations by lenders for the debt relief:

  • The debtor has filed for bankruptcy resulting from circumstances beyond his or her control and the outcome has prevented the debtor from repaying the student loan debt.
  • The debtor who claims undue hardship because of mental or physical disability may be eligible for a Total and Permanent Disability Discharge (TPD) and/or other existing discharges.
  • The debtor is a veteran who has been deemed as unemployable by the Department of Veterans Affairs as a result of service-connected impairment.
  • When the debtor is getting close to retiring, the debtor’s age when student loans were obtained and available resources when the debtor retires are to be considered.  Those who incurred student loan debt at an older age cannot use their age or retirement to claim for undue hardship.
  • The health of the debtor has considerably changed since the debt was obtained.
  • A significant time has passed since the debtor obtained the debt.
  • The debtor’s expenditures are reasonable and unnecessary spending has been minimized to set aside money for student loan payment.
  • The debtor has any psychological or physical issues and pursuing the administrative process would have caused more problems to the borrower.

The formula laid out by the Department of Education will help bankruptcy attorneys if their clients need to claim an undue hardship. But in case the government does not approve a full discharge of the debt, there is still a way to discharge a portion of the debt and allow the consumer to have a bit of a fresh start after bankruptcy.

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