Can Student Loans Be Discharged in Bankruptcy?

Many people struggle with student loan debt. When money is tight, filing bankruptcy may seem like the only way to get a fresh start. But student loans are treated differently from most other debts. Whether you’re struggling with basic living expenses or simply trying to understand your options, knowing the rules can help you make informed decisions.

This guide explores the undue hardship standard for discharging student loan debt in bankruptcy. We cover what’s involved in the required adversary proceeding and related considerations. We also discuss some alternatives to bankruptcy for those who aren’t sure if it’s the best course of action in their situation.

Ultimately, touching base with a lawyer usually makes sense because of the lasting impact of these decisions. A local bankruptcy attorney can look at your specifics and give you an idea of your debt relief options. Many also offer free consultations.

In the meantime, let’s start with a review of the two main kinds of bankruptcy.

Types of Bankruptcy

The federal Bankruptcy Code sets out two main types of consumer bankruptcies: Chapter 7 and Chapter 13. Both are handled in bankruptcy court, but they generally follow different rules and procedures. We briefly examine both types in this section.

Chapter 7 Bankruptcy

Chapter 7 is often called “liquidation bankruptcy.” This type of bankruptcy is designed for people with limited income who can’t afford to repay their debts.

To qualify for a Chapter 7 bankruptcy, you must pass a means test that compares your income to the median income in your state and also considers certain expenses.

Once you file for Chapter 7, an automatic stay halts collection efforts for almost all debts (including student loans) during the case.

Certain unsecured debts (like child support and recent taxes) are nondischargeable. But most credit card and other unsecured debts are wiped out in Chapter 7 cases through a bankruptcy discharge.

The full process is usually complete within a few months.

Chapter 13 Bankruptcy

Chapter 13 is known as a “reorganization bankruptcy.” It arranges your debts into a structured repayment plan where you make monthly payments to a bankruptcy trustee.

An automatic stay also goes into effect when you file for Chapter 13.

These plans and cases last three to five years. After that, the remaining unsecured debt is generally discharged.

Student loans usually remain in both Chapter 7 and Chapter 13 bankruptcy cases — unless you take steps to establish undue hardship.

The Undue Hardship Standard

Whether someone can discharge student loan debt in bankruptcy depends on a few factors assessed under the undue hardship standard.

This is stricter than the rules for other debts. Congress created it to prevent abuse of the system, though opponents argue it has made relief too difficult for some borrowers.

Most bankruptcy courts use a test from the Brunner v. New York State Higher Education Services Corp. (1987) case to determine undue hardship.

The Brunner Test

To establish undue hardship under the Brunner test, you must show three things:

1. You cannot maintain a minimal standard of living if you’re forced to make your student loan payments.
2. Your financial problems are likely to continue for a significant part of the loan repayment period.
3. You’ve made good faith efforts to repay the loans.

The minority of bankruptcy courts that don’t use the Brunner test instead use a “totality-of-the-circumstances” test to determine undue hardship. This looks at a borrower‘s overall financial situation to determine the impact of requiring repayment of student loans.

A bankruptcy judge makes the final decision about your student loans.

Agency Guidance

Because courts apply the undue hardship standard differently, the U.S. Department of Justice (DOJ) and Department of Education have updated their guidance in recent years to enhance consistency. The government now uses a unified attestation form to help standardize undue hardship assessments.

Types of Student Loans in Bankruptcy

Bankruptcy courts don’t handle all types of student loans in the same way. Understanding the relevant differences can help you make important decisions and know what to expect. We discuss these distinctions below.

Qualified Education Loans

Under the federal Bankruptcy Code, only qualified education loans survive bankruptcy unless you can prove undue hardship. These loans receive special protections, which is why they’re generally not dischargeable.

Loans typically qualify if they:

• Were used solely to pay eligible education expenses
• Paid for attendance at an eligible institution
• Didn’t exceed the school’s cost of attendance
• Were used by a student enrolled at least half‑time

If any of these factors don’t apply to your situation, the loan may not be considered a qualified education loan. This means the bankruptcy court will likely treat it like any other unsecured debt that may be discharged.

Federal Student Loans

Federal student loans are the most common. They include Direct Loans, Stafford Loans, Perkins Loans, and others made through federal student aid.

Federal student loans are qualified education loans. So, they’re eligible for income-based repayment programs outside of bankruptcy

But inside bankruptcy, their discharge requires proving undue hardship.

Private Student Loans

People often get private student loans from banks, credit unions, or other lenders. They often have higher interest rates and fewer protections.

Some private loans may not qualify as a qualified education loan. For example, if a loan wasn’t used for education expenses, or it was taken out when you were enrolled less than half-time, it may be easier to discharge in bankruptcy.

Recent appellate decisions, for example, have held that private loans for bar study and refinance loans that exceeded the cost of attendance were dischargeable.

Parent PLUS Loans

Parent PLUS Loans are federal student loans that some parents take out for their children. They’re treated like other federal loans in bankruptcy. So, their discharge requires proving undue hardship.

Requesting Student Loan Discharge in Bankruptcy

Courts generally don’t review student loan debt in bankruptcy proceedings. You must take extra steps to request their discharge. This requires filing a separate lawsuit, called an adversary proceeding, within your bankruptcy case.

Filing an Adversary Proceeding

An adversary proceeding is the only way the court can evaluate whether your student loans should be discharged. In it, you’re essentially asking the court to consider that their repayment would cause you undue hardship.

To succeed, you must present detailed evidence of your finances, repayment history, and the efforts you’ve made to manage the loans.

Starting the Process

For federal loans, you file an adversary proceeding by submitting a complaint naming the U.S. Department of Education as defendant, along with relevant loan servicers and holders.

This filing officially opens the adversary proceeding and notifies the Department of Education and the DOJ that you’re seeking discharge based on undue hardship. (The DOJ steps in as the Department of Education‘s legal representative once you file the complaint.)

The Attestation Form

The DOJ will then request that you complete the attestation form with detailed evidence of your finances, repayment history, and the efforts you’ve made to manage the loans.

This may require proof of:

• Your income and living expenses
• Your past student loan payments
• Attempts to use income-driven repayment
• Communication with your loan servicer
• Any forbearance or deferment history

After reviewing your attestation form and supporting documents, the DOJ decides whether to support, oppose, or not contest your request.

Possible Outcomes

If the DOJ supports your request, they agree that you meet the undue hardship standard. This can lead to a negotiated resolution or discharge without trial.

If it doesn’t contest your request, the DOJ doesn’t argue against discharge, but it also doesn’t affirmatively support it. In practice, this means the government steps aside and allows the bankruptcy judge to rule without opposition, which still makes the process significantly easier.

If the DOJ opposes your request, the case proceeds through normal litigation steps. This typically begins with discovery, motions, and, if necessary, a trial, until the court decides.

Sometimes the court may grant a partial discharge. This means only part of your loan is adjusted to a more manageable amount.

Private Loans

To request discharge of private student loan debt, the same adversary proceeding and undue hardship standard apply.

However, the defendant is the private lender. The DOJ and ED aren’t involved, and there is no attestation form requirement.

Alternatives To Bankruptcy for Student Loan Debt

Bankruptcy isn’t the only path to student loan debt relief.

Before or during bankruptcy, you may consider other options. This section provides basic information about some of the main alternatives.

Income-Driven Repayment Plans

The Department of Education administers income-driven plans. These programs can reduce your monthly payment based on your income and family size.

Income-based repayment plans can reduce payments to as low as $0 and may lead to forgiveness after 20-25 years.

Loan Consolidation

Consolidating federal loans can simplify payments and may help you qualify for certain programs. It doesn’t reduce the total amount owed. But it can make repayment easier because many student loan borrowers can’t qualify for income-driven repayment unless they consolidate first.

However, consolidation can reset certain time clocks. So, borrowers who’ve already started income-based repayment forgiveness and/or public service loan forgiveness should understand the impact of consolidation before moving forward.

Deferment and Forbearance

If you’re facing short-term financial hardship, deferment or forbearance can temporarily pause payments. Interest may continue to grow, so these options are best for temporary relief.

These options can give you breathing room when you can’t afford your payments by preventing defaults while you stabilize your situation. They’re often used to avoid collections or wage garnishment during short-term financial crises.

Getting Legal Advice

Your options for addressing student debt, both inside and outside bankruptcy, may be more encouraging than you think. But this is a complicated intersection, and you should not make consequential decisions without legal guidance.

At a minimum, you’ll want to touch base with a bankruptcy lawyer who’s licensed in your state. That way, you can ensure that you understand the short- and long-term impacts of your debt relief options, including bankruptcy.

If finding an advisor you can trust, who also has the right qualifications, isn’t the most appealing project at this time, you’re not alone.

FindLaw’s directory of bankruptcy law attorneys is free and publicly accessible online. This resource can do a lot of the heavy lifting for you. When you select your location, you can see ratings, background, and other information for experts in your area, including those who offer free consultations.

Depending on where you are in your journey, look for one who specializes in adversary proceedings or alternative debt relief options. Arrange a meeting and get the answers you need to get that fresh start, one way or another.