At a recent conference of the National Association of Consumer Bankruptcy Attorneys (NACBA) (I’ve been a proud member of NACBA for many years), Assistant United States Attorney General Vanita Gupta spoke about the Biden Administration’s efforts to promote justice and fairness in the bankruptcy process. Some of the remarks are provided below:
It’s a privilege to be here at NACBA’s annual convention. NACBA does important work ensuring that debtors receive high-quality legal representation and advocating for systemic improvements to the bankruptcy system. I’m grateful for the chance to speak to you all today about the Justice Department’s efforts on consumer-bankruptcy issues and how those efforts connect to our broader priorities.
The stakes of the bankruptcy process succeeding or failing are very high. People coming to the bankruptcy courts may not have great trust in our legal system. They have often just experienced a wrenching event, like a job loss, a natural disaster or a medical emergency. They may have been the victims of fraud or of unfair, deceptive or abusive lending practices. They may feel that other legal protections should have stopped them from reaching this point. And they may worry about what comes after the bankruptcy filing. If a bankruptcy goes well, the debtor will start fresh with increased confidence in our institutions and our legal system. But if it goes poorly, she or he may experience a loss of trust as well as more acute financial harms.
So I want to focus today on what the Department of Justice is doing, across our components, to reflect our commitment to “ensur[ing] economic opportunity and fairness” in bankruptcy and beyond….I’ll focus on a policy that I’m very proud of — our creation of a more equitable and accessible process to handle student-loan discharge requests. You know all about — and are advocating to change — the high bar Congress has set for discharging student loan debt. But we also know that the bar was not meant to be insurmountable. And after extensive conversations with our colleagues at the Department of Education and other stakeholders, we are taking steps to ensure that the statute is not applied in ways that prevent eligible debtors from discharging their loans.
We came into that policy process with three goals. First, to set clear, transparent and consistent expectations for discharge that even unrepresented debtors can understand. Second, to simplify the fact-gathering process and avoid intrusive and burdensome discovery. And third, where the facts and law support it, to increase the number of cases where the government recommends to the bankruptcy court that student loans should be discharged.
I’m happy to say that our new process meets those goals. I’ll cover just a few highlights:
We have minimized the need for discovery by encouraging debtors to file an attestation form with the information the government needs to evaluate a discharge request. We all know that discovery can be invasive and time-consuming, and there is no reason to require that prolonged and extensive process in every case when student-loan-discharge cases often turn on discrete pieces of information we can obtain in advance.
We have set out a number of circumstances where we will presume that debtors lack future ability to pay. We know, based on our and the Department of Education’s experiences, that there are categories of people who are really unlikely to improve their financial circumstances. And so if your clients are elderly, disabled, have experienced long-term unemployment, were unable to obtain the degrees for which they incurred loans, or have been in repayment on their loans for more than ten years, we will presume that they will continue to lack ability to repay their loans, and so will satisfy the relevant portion of the test. We think that this common-sense approach will make a real difference on the ground.
We are also rethinking our approach to what many courts call the “good faith” prong of the undue-hardship standard. In our guidance to Justice Department attorneys litigating these cases, we note that there are many reasons debtors do not enroll in income-driven repayment plans, especially given the flaws with many of those plans that the Department of Education and the CFPB have identified. Reasonable decisions not to enroll in those plans should not preclude a debtor from discharging his or her debt. And decisions by a debtor to make payments, apply for deferment, or otherwise meaningfully engage with Education or with a loan servicer are steps that evidence good faith.
Since releasing the guidance, we have trained our lawyers throughout the country on how to implement the new policy. We are already seeing results: We are aware of at least 100 cases in which borrowers have agreed to use the process established by the guidance — and, with the benefit of that process, we have been able to support full or partial discharge in the overwhelming majority of cases we have considered to date.