In a student loan bankruptcy case, "good faith" means you made an honest effort to deal with your loans over their whole life, not that you paid them perfectly. Under the Department of Justice's 2022 guidance, taking even one of several common steps, like making a payment or asking your servicer about options, is treated as good faith unless something points the other way.
Where good faith fits
To discharge federal student loans in bankruptcy, you must show that repaying them would be an "undue hardship." The government's guidance looks at three things: whether you can pay now while keeping a minimal standard of living, whether that is likely to continue, and whether you have made good faith efforts to repay.
Steps that count
The guidance says that if you have taken at least one of these steps, and there are no circumstances pointing the other way, that shows good faith:
- making a payment
- applying for a deferment or forbearance (other than in-school or grace-period deferments)
- applying for an income-driven repayment (IDR) plan
- applying for a federal consolidation loan
- responding to outreach from a servicer or collector
- engaging meaningfully with the Department of Education or your servicer about payment, deferment, forbearance or consolidation options
- engaging meaningfully with a third party you believed would help you manage the loans
Government attorneys are told to look at "the entire life of the loan rather than merely considering the recent history." The guidance also says the COVID-era pause in payments "is not evidence of bad faith."
Missed payments are not automatically a problem
The guidance says that where other evidence of good faith exists, such as not having the money or contacting your servicer about options, "the failure to repay (or inconsistent or limited repayment) does not indicate a lack of good faith."
It also recognizes that borrowers were sometimes given bad information. The good faith inquiry "should not disqualify debtors" who did not fully engage "due to possible misinformation, wrongful IDRP determinations, or a lack of adequate information or guidance."
What if you never enrolled in IDR?
Being on an IDR plan is evidence of good faith. Not being on one is not disqualifying. The guidance says "non-enrollment alone does not show a lack of good faith," and government attorneys are expected to accept any reasonable explanation. Its examples include being steered into forbearance instead, getting inaccurate or confusing information about IDR, or plausibly believing IDR would not have meaningfully improved your situation.
Income and expenses matter too
Good faith also looks at your efforts to find work, maximize income and minimize expenses. Under the guidance, if your expenses fall within the IRS standards, you have minimized expenses. Spending above them is not automatically fatal; your explanation is supposed to be carefully considered. Personal or family obligations that limit your work or raise your expenses can also be consistent with good faith.
What the attestation form asks
The DOJ attestation form has a section called "Prior Efforts to Repay Loans." It asks how much you have paid in total, how many forbearances or deferments you applied for and how long they lasted, how many times you contacted your servicer or the Department of Education, what you did to enroll in IDR (or why you did not), and any other facts showing good faith, such as job searches.
Here is an example. A borrower paid $50 a month for two years, fell behind after a layoff, called her servicer twice, and asked for a forbearance. Each of those belongs on the form. If the Department of Education's records are incomplete, the guidance says that "should not reduce the weight of the borrower's evidence."
Where good faith can fall short
The guidance says a debt should not be discharged if the borrower "willfully contrive[d] a hardship," committed fraud in getting the loans, or otherwise showed a lack of interest in repaying. Every case turns on its own facts. The government may support a full discharge, a partial discharge, or neither, and the bankruptcy judge makes the final decision. This process applies to federal loans held by the U.S. Department of Education; we do not handle private student loans.
Talk to us
If you are worried that your payment history will count against you, call us at 702-386-8600 for a free consultation by phone or video. We will look at your loans and your history and tell you honestly whether a case makes sense.