Can You File Bankruptcy on Refinanced Student Loans?

#1 Student loan lawyer

Updated on March 2, 2024

You may have been told that student loans never go away — even in bankruptcy. That’s not entirely accurate.

Filing bankruptcy to eliminate refinanced student loan debt is a two-step process. First, you file a bankruptcy case: either a Chapter 7 or Chapter 13 bankruptcy. Then you file a separate lawsuit to prove that paying back your loans will cause you an undue hardship.

The discharge order you get from the court at the end of your case erases your credit card debt, medical bills, personal loans, and so on. But you’ll be stuck with the refinanced student debt unless you prove to the bankruptcy court that repaying the loans will cause you and your dependents an undue hardship.

Offering up this proof is harder for federal student loans than it is for private loans. The U.S. Department of Education offers its borrowers income-driven repayment plans that cap their monthly payments at no more than 20% of their discretionary income and promises loan forgiveness after 20 to 25 years of payments.

Refinanced private loans don’t have these same affordable repayment options. And private lenders won’t agree to forgive your balance unless you become permanently disabled. Those missing protections make it easier to discharge refinanced student loans.

Ahead, learn how to file bankruptcy on refinanced student loans.

Note: Looking to file bankruptcy on your student loan debt? Speak with a student loan bankruptcy attorney to see if you have a shot at getting rid of your school loans. Schedule a call today.

How to get rid of refinanced student loans in bankruptcy

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?


Should you file bankruptcy on refinanced student loans?

Although it’s possible to discharge refinanced student loans in bankruptcy, the process can be expensive, and it’s not guaranteed. Before you go down that path, ask your lender about changing your payment plan or extending your repayment term to help lower your student loan payments.

Another option is to explore refinancing with a new lender. Student loan refinance rates are historically low. Depending on your credit score and income, you may qualify for a lower interest rate, making your payments more affordable.

Settlement is another option. But you’ll have to default first, which will add several late payments to your credit report and tarnish your score for several years. If you’ve already defaulted or are bordering on delinquency, negotiating a lump-sum payoff for less than the total balance is possible.

If you’ve exhausted those options, filing bankruptcy could make sense.

Learn More: Why Can’t You File Bankruptcy on Student Loans?


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Bottom Line

If you’re struggling to pay your student loans after refinancing, filing bankruptcy can help erase some or all of the balance. Before you rush to federal court to prove your case, it makes sense to speak with a lawyer experienced in using bankruptcy to discharge private and federal loans.

Since 2014, I’ve helped dozens of borrowers across the United States use bankruptcy to tackle their education loans.

Schedule a free 10-minute call with me today. We’ll work together to determine the best strategy to deal with your student loans inside and outside bankruptcy.

UP NEXT: How to Apply for Student Loan Forgiveness


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