Student Loan Borrowers Seeking Bankruptcy Protection Relief

What is the latest with student loan debt relief? Well, the federal government trumpeted the initial success of an initiative to make it easier to eliminate student loans when filing for bankruptcy relief. However, like most things in Washington, the enthusiasm to have a clear path left room to be desired than consumers advocates had hoped. Moreover, substantial student loan relief in bankruptcy is being held back by sluggish government response times, opaque application of the guidance, and a general reluctance by consumer attorneys to fight what has traditionally been a losing battle, attorneys and others say.

The guidance from the departments of Justice and Education, introduced in November 2022, has the potential to change lives and upend nationwide standards that for nearly three decades have made it virtually impossible for struggling borrowers to get rid of federal student loans. Within the first 10 months of the guidance, 632 bankrupt student borrowers had filed cases to have their loans wiped out, a “significant increase from recent years,” the agencies said in a press release. However some of the most fervent supporters of the change say such cases won’t make a sizable dent in the nation’s $1.7 trillion federal student debt crisis. 

Substantial student loan debt relief in bankruptcy is being held back by slow government response times, unclear application of the guidance, and a general reluctance by consumer attorneys to fight what has traditionally been a losing battle, attorneys and others say. More lawyers need to file student loan discharge cases for the process to work as intended, said Edward Boltz, a managing partner with the Law Offices of John T. Orcutt and former president of the National Association of Consumer Bankruptcy Attorneys. The initial increase in filings was encouraging, but “it still needs to be 10 or maybe even 100 times more than that,” Boltz said. “My hope is that in the next 12 months we’ll see another acceleration.”

The hesitancy to assist those with student loan debt by consumer attorneys, some of whom have never filed an adversary case, is the most significant constraint on new filings and progress. However, that could change once more lawyers see cases with positive outcomes. For example, Boltz, the former head of the consumer bankruptcy group, said he wanted to take things slow and test the waters last year by bringing just two cases, both for older and more destitute clients. In addition to feeling out how federal agencies are adapting to the policy, Boltz said he’s being careful about putting new debts on his clients since it costs a few thousand dollars to litigate an adversary proceeding. “Previously it was a herculean task, where now it’s just a headache,” he said. Having said that, let the Law Offices of John T. Orcutt be the aspirin to help with this student loan headache. 

If you find yourself struggling with student loan debt, being hounded by debt collectors and looking for a permanent debt-relief solution, contact the law offices of John T. Orcutt for a free consultation on getting out of debt for good.