Federal recommendations leave the final decision to judges
Guidance issued by the Biden administration in November 2022 gave the Department of Education and Department of Justice a more standardized process for assessing whether student loan payments imposed undue hardship. If the agencies agreed that a borrower qualified, the government could ask a bankruptcy judge to approve a discharge. The guidance does not bind judges or change the legal standard, and courts retain discretion to assess the evidence, according to a review in the American Bankruptcy Law Journal.
The Brunner test is used to assess whether student loan repayment would impose undue hardship. In Belinda Garcia’s case, Chief Bankruptcy Judge Michael Parker held a hearing and denied a joint request for a discharge, finding the evidence insufficient to establish undue hardship. Garcia owed $99,000 in student debt. The court’s order explains its decision and states that the federal government’s agreement did not settle the issue for the court; the bankruptcy court order is available online.
The district’s reported outcomes
An Austin American-Statesman analysis of more than 3.5 years of cases in the Western District of Texas found that borrowers discharged student debt in 15 of 62 completed cases, a 24.2% success rate. The newspaper reported that results differed substantially by judge.
The district figures differ from national estimates, though the studies do not necessarily measure the same cases or process. A study reported by CNBC found an 87% success rate among borrowers seeking discharge. Researcher Dahlié Jiménez estimated a 56% national success rate for the streamlined approach, according to the Statesman. Federal support did not guarantee approval, as Garcia’s case illustrates.
Representation and filing decisions
The Statesman reported that lawyers had stopped bringing many cases in those courtrooms, with some attorneys choosing dismissal over the expense and risk of proceeding to trial. More than half of the district’s student loan cases were filed without lawyers, according to the analysis.
The filing patterns underscore practical barriers for borrowers.
