Discharging student loans, including debt you refinanced, comes at the end of the bankruptcy proceedings. Here are the steps involved:
Step 1 – File Bankruptcy
There are two main types of bankruptcy to choose from: Chapter 7 bankruptcy and Chapter 13 bankruptcy. Chapter 7 cases are cheaper and much faster than Chapter 13 cases. You can file the bankruptcy yourself or hire an attorney to do it for you. The fees to file a case may range from several hundred dollars to a few thousand dollars, depending on where you live and the complexity of your case.
Step 2 – File an Adversary Proceeding
You’ll need to file a lawsuit known as an adversary proceeding to discharge your student loans. You can kick that off by filing a written complaint that outlines your case to the bankruptcy court. The time to do that is before you get a bankruptcy discharge or shortly after your case ends. Read more about how to file an adversary proceeding for student loans.
Step 3 – Prove Undue Hardship
Bankruptcy law doesn’t define undue hardship. As a result, judges have created different tests to measure the financial hardship your student debt causes. The Brunner Test, which comes from the 1980’s case Brunner v. New York State Higher Education Services Corp., is the most popular test.
To pass it, you must prove three things:
Your current income and expenses prevent you from maintaining a minimal standard of living if forced to repay the debt.
Your financial situation will likely persist for much of the repayment period.
You made a good-faith effort to pay the loan by making payments on the refinance loans when you could and requesting deferments and forbearances when you couldn’t.
Many student loan borrowers fail to provide enough evidence to meet this undue hardship standard. It’s challenging — even if your personal finances have been in shambles for years.
You’re not just battling the private lender, or student loan refinance company that owns your loans. You also have to overcome decades of case law where judges decided against granting borrowers’ discharges because they hadn’t pared their living expenses to the bone or worked second jobs to increase their income. Read more about how to prove undue hardship for student loans.
Step 4 – Wait for the Outcome
Getting a student loan discharge through bankruptcy can take several months to a couple of years from start to finish. After you file the complaint, the loan servicer or holder will have time to respond. The case will be litigated from that point until the judge determines the outcome. You may receive a full discharge, partial discharge, or no discharge.
Learn More: Can Private Student Loans Be Discharged in Bankruptcy?