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The Biden administration’s decision to make it easier to discharge student loans in bankruptcy could offer a new safety valve for debtors who have exhausted other options for getting out from under heavy debt loads, the Wall Street Journal reported. The move, announced Thursday, comes as President Biden’s broader plan for mass student-debt cancellation is in limbo after being blocked by two separate federal courts. That plan calls for canceling up to $20,000 in debt for borrowers under certain income thresholds. It would render up to 20 million people free of debt, around half of all student-loan borrowers, if courts allow it go forward. The bankruptcy changes set specific requirements for borrowers to prove that they are experiencing economic distress. Government lawyers will assess a borrower’s ability to repay their loans based on a set formula — whether expenses equal or exceed a debtor’s income — and other considerations, such as retirement age, disability, educational attainment and job history. The scope of its impact will depend on how the new rules are applied by judges, lawyers and student-loan borrowers across the country in individual bankruptcy cases. Over time, the handling of these cases could differ depending on which party controls the White House. Read more. (Subscription required.)

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For decades, lawmakers shaped policy to benefit for-profit companies, nonprofits and state-affiliated organizations that earned money from the federal student-loan system, sometimes to the detriment of borrowers. Now, threats to these organizations’ bottom line could derail the Biden administration’s debt-cancellation plans, according to a MarketWatch.com analysis. In their lawsuit asking the court to strike down the debt forgiveness plan, six Republican-led states are arguing that they’ll be harmed by the cancellation program — and therefore have the right to sue over it — in part because it will cut into the revenue of state-affiliated entities that earn money from owning old student loans and servicing new ones. Attorneys representing the states cite potential harm to more than one of these entities as well as other claims as reasons why they have standing or the right to bring a lawsuit over the debt-cancellation plan. More than anything, it’s the risk to the financial interests of the Higher Education Loan Authority of the State of Missouri (MOHELA) that appears to have convinced a panel of appellate court judges in the 8th circuit to grant the states’ request to temporarily block the Biden administration’s program while they hear the case. The suit is one of many filed by opponents of the loan forgiveness plan, including one that led a north Texas judge to declare it unconstitutional earlier this month. But since the states filed their suit in September, advocates and critics of the Biden administration’s debt relief plan have been watching it closely both because of the high-profile nature of the plaintiffs and because their claim for standing is arguably the strongest. The Biden Administration plans to ask the Supreme Court to restore the debt relief plan, according to a recent legal filing. Officials at MOHELA, which services student loans on behalf of the federal government, have said they weren’t involved in the states’ decision to file the lawsuit. Still, the litigation is the latest example of how the interests of these state-affiliated organizations and nonprofits that earn millions of dollars through their participation in the student loan system can impact policy surrounding it — and the fate of millions of borrowers.

The Biden administration on Thursday released new guidelines that will make it easier for economically distressed student loan borrowers to discharge their student debt in bankruptcy proceedings, the Wall Street Journal reported. The long-awaited guidelines from the Justice Department and Education Department set specific requirements for borrowers to prove that they are experiencing economic distress. The government will calculate whether a debtor’s expenses equal or exceed a debtor’s income, and if they do, the Justice Department will declare that the borrower is unable to pay their debts. The Justice Department will also assess whether a borrower’s present inability to pay will likely persist in the future, taking into account factors like retirement age, disability, long-term unemployment or if the borrower didn’t finish their degree. Under the current system, which the administration described as unnecessarily burdensome, the federal government often delves into borrowers’ financial history to show they haven’t demonstrated their economic hardship. “Today’s guidance outlines a better, fairer, more transparent process for student loan borrowers in bankruptcy,” said Associate Attorney General Vanita Gupta. The changes come as the Biden administration’s mass student debt cancellation plan has been blocked by two federal courts. That program, which would cancel up to $20,000 for borrowers who make under $125,000 or $250,000 for a married couple, relies on a different definition of economic hardship — namely, that the negative economic effects of the pandemic allow the administration to forgive debt on a broad scale. A federal judge in Texas has rejected that authority, and the Justice Department has appealed the ruling. Read more.(Subscription required.)

For more information, click here to read DOJ's press release.

By the end of September, the United States saw nearly 384,000 bankruptcy filings, according to the Administrative Office of the U.S. Courts. A 2019 study conducted by the Center for Economic Studies found veterans are more likely to file for bankruptcy. It said 14.7% of veterans file for chapter 7, and 15% file chapter 13, compared to 10.3% of the national population, ABCActionNews.com reported. Working beside the American Bankruptcy Institute (ABI) Task Force on Veterans and Servicemembers Affairs, the Business Law Section of The Florida Bar is creating a pilot-program to link veterans in need of insolvency legal representation to lawyers who can help address their financial issues in Florida. "We just want to make sure that the resources are available and whatever needs are out there getting that," said Tampa attorney Steve Berman. Before an official launch, they need more lawyers to sign up as volunteers. The database connects veterans looking for a financial attorney to volunteer attorneys in the three states with the most veterans: Florida, Texas, and California. "Sometimes reaching out to an insolvency lawyer means someone has financial distress. Sometimes that's a need that can be solved with some counseling with some budgeting with some negotiation. There are lots of nonbankruptcy options out there that bankruptcy lawyers employ as first steps. And so we want to make sure that we have enough lawyers," he said. Read more.

To view the interactive website directory that was developed by the American Bankruptcy Institute’s Veterans and Servicemembers Affairs Task Force, please click here: https://veterans.abi.org/legal-resource-database. It is intended to assist veterans and servicemembers with locating low-cost, reduced-fee, and free legal services, programs, and other resources in their geographic area. Do you know of a legal services provider that should be listed here? Encourage them to sign up by clicking here..