Can you file bankruptcy on student loans? Process, timeline, and steps to take

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Student loans are eligible to be discharged in bankruptcy, but doing so is no simple task. Unlike credit cards and medical bills, getting rid of your education debt is a difficult and costly process. Chapter 7 and Chapter 13 bankruptcy lawyers say the cost of filing student loan bankruptcy can range from a few thousand dollars to more than $10,000, which is why you should consider other debt-relief options before deciding.

Keep reading to learn how filing bankruptcy for student loans works and if it’s right for you.

What is student loan bankruptcy?

Before 1976, people who filed for bankruptcy could do away with student loans in bankruptcy court just as they could credit card debt or auto loans.

But resentful members of Congress, concerned that recent graduates would abuse that option, made a new rule: borrowers could cancel student loan debt after five years of payments or earlier if they could show that repaying would cause “undue hardship”.

Over the years, lawmakers kept making changes. But they never defined “undue hardship”. Ultimately, that task fell to federal bankruptcy judges who have spent years struggling to create an undue hardship standard.

Student loan bankruptcy is a two-step process:

  • Step 1: file Chapter 7 or Chapter 13
  • Step 2: file an adversary proceeding or AP.

The AP is a separate legal process from the ordinary bankruptcy proceeding. In the AP, you’ll file a complaint that lays bare your financial situation. The bankruptcy judge will review it and consider the type of financial hardship your student loan debt is causing: ordinary or undue.

Can you file bankruptcy on a student loan?

You can file bankruptcy on federal and private student loans. However, the hurdles are high, and discharges are rare for two reasons. First, for years, politicians have made student loans harder to discharge. Second, bankruptcy courts across the country have different standards, which means your chances can depend on where you live.

You must bring a separate lawsuit within your bankruptcy case to discharge student loans — known as an adversary proceeding. In that lawsuit, you must convince the court that the student loan debt would impose an “undue hardship” and try to stop your lender from frustrating your effort to get a discharge.

Can I file bankruptcy on just student loans if I don’t have any other debt? You can file bankruptcy even if your only debt is student loans. At the end of your bankruptcy case, the court will enter a general discharge order covering any credit card debt, medical bills, auto loans, judgments, etc. That same order will relieve you of your student loan debt if you prove undue hardship.

Student Loan Bankruptcy Law

Student loans were added to the Bankruptcy Code in the 1970s. Congress has amended student loan bankruptcy laws over the years, the most recent in 2005 with the passage of BAPCPA. The current law, which is at 11 USC 523(a)(8), protects four types of education debt from discharge:

  • student loans made by the federal government (e.g., Direct Loans and Parent PLUS Loans)
  • student loans made under a loan program funded by the government (e.g., FFEL Loans) or a nonprofit (e.g., Perkins Loans)
  • conditional scholarships, stipends, and grants (e.g., ROTC scholarship)
  • private student loans to attend colleges that take part in the Federal Student Aid Program

Some private student loans can be discharged without having to prove undue hardship if:

  • The loan was not insured or funded by the federal government or a qualifying non-profit
  • The loan does not meet the IRS's requirements to be a qualified education loan

However, that’s not the case for the vast majority of private loans.

Student Loan Bankruptcy Reform

In recent years, federal lawmakers have proposed a handful of bills that would give relief to student loan borrowers. But as this investigative report from the Washington Post stresses, no major reform to the bankruptcy rules for student loans has been successful.

Here are some of the proposed student loan bankruptcy reforms being considered:

  • August 2019: Senator Elizabeth Warren (D-MA) and Senator Richard Durbin (D-IL) introduced the Student Borrower Bankruptcy Relief Act of 2019, which would eliminate the section of the US Bankruptcy Code that makes private and federal student loans nondischargeable.
  • August 2021: several representatives introduced the Private Student Loan Bankruptcy Fairness Act. The Act would treat private student loans like other consumer debt without the need to file an adversary proceeding.
  • August 2021: Senators Durbin (D-IL) and John Cornyn (R-TX) unveiled the Fresh Start Through Bankruptcy Act. The bipartisan bill would amend the U.S. Bankruptcy Code to make it easier for federal student loan borrowers to get discharges by eliminating the undue hardship standard after they’ve been in repayment for 10 years.
  • October 2021: Federal Student AID COO Richard Cordray revealed that members of President Joe Biden’s administration are exploring how the Education Department defends undue hardship cases. Changes the Department could make to its defense strategy have already been laid bare in a paper co-authored by a former Education Department Employee.

None of the proposed legislation has made it out of committee.

Student Loan Bankruptcy Outcomes

Here are likely outcomes after filing student loan bankruptcy:

  1. The court awards a full discharge if you prove you can’t maintain a minimal standard of living while repaying all of your student loan debt.
  2. The court awards a partial discharge if the judge thinks you can pay some of your loans.
  3. The court denies discharge if you cannot prove your financial hardship is undue.
  4. You negotiate a settlement if you and the loan holder agree that you’ll pay less than your balance.
  5. Your case is dismissed if you don’t follow the bankruptcy process (e.g., not giving the AP to the right loan servicer).

How to prove undue hardship for student loans

Borrowers can discharge their student loans by showing the loans are an “undue hardship” — a standard that courts interpret differently, depending on where you live. Some judicial circuits have judges use the Brunner Test, named for the case that created it — Brunner v. New York State Higher Education Services.

Under the Brunner Test, judges must answer three questions affirmatively to discharge the student loans:

  • Based on current income, is the debtor unable to maintain a minimal standard of living while making the payments?
  • Is the debtor’s financial difficulty likely to persist?
  • Has the debtor made a good-faith effort to repay the loans?

Courts in other jurisdictions use a more flexible standard, the totality of the circumstances test. No matter where you live, you’ll have an easier time proving undue hardship for private student loans, which don’t offer income-driven repayment plans and loan forgiveness, than you will for federal student loans.

How to file for student loan bankruptcy

After reviewing hundreds of student loan bankruptcy cases, I can tell you that success often comes down to preparation. Don't rush to file your case. Take time. Gather evidence. Research how judges in your jurisdiction have decided cases. Once you've done those things, only then should you file for student loan bankruptcy.

Step 1: Gather your student loan documents

Before you file bankruptcy, you want to know whether your loans are federal or private or both. You’ll also want to know:

  • how much you owe for each loan
  • the interest rate
  • the daily interest accruing
  • the repayment period
  • how many student loan payments have been made
  • the current account status.

Step 2: Meet with a bankruptcy attorney

Even if you choose to represent yourself, speak with a bankruptcy lawyer in your area about your options. The lawyer can review your facts and help you understand which type of bankruptcy you should file. They can also give you insight into how the judges in your jurisdiction review student loan cases and an overview of the bankruptcy process.

Step 3: File bankruptcy

Regardless of whether you file a Chapter 7 or Chapter 13 bankruptcy, you’ll need to file paperwork listing all of your creditors and assets. The bankruptcy petition and schedules give a snapshot of your personal finances at the time you filed. You’ll list your student loans on Schedule E/F. If you file Chapter 13 bankruptcy, you’ll provide the court with a plan to repay your secured debt and unsecured debt over the next 3 to 5 years. Your student loans will be included in that chapter 13 plan.

At the end of your case, you’ll get a bankruptcy discharge of most of your consumer debts except for child support, alimony, certain tax liabilities, and student loan debt.

Step 4: File an adversary proceeding

To file the adversary proceeding, you'll need to prepare a complaint and adversary cover sheet. The complaint will have a caption, which names the parties and gives details about the bankruptcy case, and facts showing your loans should be discharged due to undue hardship.

Here’s a sample student loan adversary proceeding complaint. Keep in mind that your complaint can be a lot longer, like this complaint prepared by a borrower who represented herself pro so. It can also be a lot shorter, like this one prepared by a bankruptcy attorney. (Both complaints led to the borrower getting their student loan debt discharged.)

Step 5: Wait for a result

It can take several months before the bankruptcy judge enters a decision in your case. Before that happens, several things may occur:

  • the company that owns your loans will have time to respond to your complaint
  • the court will set discovery deadlines
  • the loan holder may ask to depose you or vice versa
  • either party may file motions to dismiss or summary judgment
  • a trial may be held

You may be able to avoid a lot of these steps by negotiating a settlement.

When to file the adversary proceeding?

Borrowers start the process to get a discharge of student loan debt by filing an adversary proceeding. An AP is a lawsuit within a bankruptcy case. When you present the AP to the court, you’ll include a complaint and a cover sheet. The complaint consists of a caption, which tells the court which loans you’re trying to get rid of, and the reasons the court should grant a discharge of student loan debt.

When to file the student loan adversary proceeding depends on what type of bankruptcy case you filed.

  • Chapter 7 bankruptcy case: you can file right after the case starts or after you get a discharge and the case is closed. Depending on where you live, you may even be allowed to file the AP several years after your case ends.
  • Chapter 13 bankruptcy case: some jurisdictions allow you to file the AP soon after your repayment plan starts, but other courts will make you wait until your case draws to a close.

Should you file bankruptcy on student loans?

Filing bankruptcy is a drastic action with long-lasting consequences that can impact your personal finances years later. It will lower your credit score and add hurdles to the home buying and refinancing process. But the relief you could get from discharging your student loan debt — even though the barriers are high — may be worth it.

Bankruptcy can be a good option for student loan debt if:

  • You can’t afford the monthly payments. The US Department of Education offers affordable income-driven repayment options and student loan forgiveness programs. You’ll want to exhaust those options before filing bankruptcy. Private student loans have fewer options for borrowers who can’t afford their monthly payments. But before you sit down with a bankruptcy lawyer, call your lender or loan servicer and ask if they will lower your interest rate or give you a deferment or forbearance so you can figure out other options.
  • You can’t get out of default. Lenders charge off private student loans after several months of missed payments. When that happens, your loans will stay in default, and your options to resolve the debt are limited. You can pay the balance in full or negotiate a settlement. But those options require money you may not have. Federal student loans have two main pathways to get out of default: loan rehabilitation and consolidation. But if you’ve defaulted more than once, you may be out of options.
  • You’re being sued for private student loans. Private lenders don’t have the same collection powers that the federal government has. So when the student loan defaults, the lender’s only option to recover from you is to file a student loan lawsuit to garnish your wages or take money from your bank account. Bankruptcy stops those things from happening.

Alternatives to student loan bankruptcy

Bankruptcy is not the best choice for everyone. Plus, not everyone will qualify for undue hardship. If you need some alternatives, there are many other ways to lower monthly payments or reduce interest rates.

What are some ways to get rid of student loans? Some ways to help you get rid of your student loan debt include:

1. Refinance for a lower interest rate

Depending on your student loan balance, credit score, and income, you may find a lender that offers a much lower interest rate to refinance your private student loans.

While refinancing won’t eliminate the debt, the lower interest rate may make it easier to pay off your loans faster.

2. Consolidate for a single monthly payment

You can combine your existing federal loans into a new Direct Consolidation Loan by submitting an application to a loan servicer. You cannot consolidate private loans into a federal Direct Consolidation Loan.

I do not recommend refinancing federal student loans. You lose the advantages of federal loans, such as income-based repayment and loan forgiveness programs. Consider consolidating your federal student loans for one monthly payment.

3. Request a deferment or forbearance

If you’re struggling with your private student loans, ask for a deferment or forbearance to give you some debt relief.

You can also ask your student loan servicer if they offer interest rate reduction programs and other flexible repayment options.

4. Apply for an income-driven repayment plan

IDR Plans are affordable repayment plans offered to federal student loan borrowers. These plans allow you to pay 10%-15% of your discretionary income for 20-25 years.

The other benefit of these student loan repayment plans is that the Department of Education forgives the remaining loan balance after you make your last payment.

5. Check eligibility for discharges

The federal government and some private lenders may discharge your student loan debt if you have a total and permanent disability. You can qualify for disability discharge if you have a mental or physical issue that keeps you from working.

Other options for cancellation or discharge are if your school misrepresented your ability to transfer credits or career opportunities, or it closed when you were attending the school or soon after you left.

How do I know if my student loans were discharged?

You'll know that your student loans were discharged if you filed an adversary proceeding and got a court order discharging your loans. If your student loan accounts show on your credit report as $0 after filing bankruptcy, that doesn’t mean your loans were discharged. It could just mean that your loans were sold to a new company. The court order is your only sure bet to tell.

Common questions about student loan bankruptcy

Student loan bankruptcy can be challenging to navigate. Here are the most common questions I hear as a student loan lawyer.

Can I declare bankruptcy on my student loans if they are not federal student loans? Yes, you can declare bankruptcy on private student loans that were not funded by the federal government. In fact, private student loans are easier to discharge than federal student loans.

Do I have to be in default to file student loan bankruptcy? You don’t have to be in student loan default to file bankruptcy. You can file bankruptcy if your loans are in good standing. However, filing bankruptcy will stop student loan wage garnishment, tax refund offset, and Social Security benefit offset — all problems you may face if you are in default.

Which bankruptcy is the one to file if it’s just credit cards and student loans? Most borrowers with credit card and student loan debt will want to file Chapter 7 bankruptcy. It’s cheaper and faster than Chapter 13. But to qualify for Chapter 7, you’ll need to pass the means test.

In what states are student loans discharged in bankruptcy? You can file bankruptcy and get a discharge of student loans in all U.S. states if you meet the undue hardship standard.

My student loans were discharged in chapter 7? Student loans are not included in the general discharge order you received from the bankruptcy court at the end of your case. You will still owe your student loan debt until you file an adversary proceeding and prove the loans are causing you undue hardship.

How often are student loans discharged in bankruptcy? A study in the American Bankruptcy Law Journal showed that 4 out of 10 borrowers received a partial discharge or full discharge of their student loan debt when they went through the process. Despite that success, only 0.1% of borrowers who file bankruptcy try to get rid of their student loans.

Why can’t I declare bankruptcy on student loans? You can declare bankruptcy on student loans, but you must file Chapter 7 or Chapter 13, file an adversary proceeding, and then prove undue hardship. Undue hardship can be difficult to prove.

Are student loans written off under bankruptcy? No, student loans are not automatically written off when you file for bankruptcy. You must file Chapter 7 or 13 bankruptcy, then file an adversary hearing, then prove undue hardship.

What are the benefits of bankruptcy on student loans? The benefits of bankruptcy on student loans include:

  • A potential discharge. If you can prove undue hardship at an adversary proceeding, you can get your student loans discharged.
  • Protection from collection agencies. Filing for bankruptcy protects you from collection on all your debts, including student debt, unless your creditor gets express permission from a judge to start collecting again.
  • Relief from federal garnishments. Filing for bankruptcy stops wage garnishment, tax refund offset, and Social Security benefit offset during the bankruptcy process.

Need expert advice on your loans? Let’s talk.

The process to get a hardship discharge of your student loan debt can be intimidating. Not only do you have to file bankruptcy, but you also have to pass different tests and provide evidence of your current financial situation and reasonably reliable future income.

You’ll also have to show your inability to repay your loans will last for a significant portion of the repayment period of the student loans.

If you’d like a second opinion on your loan situation, let me help. I’ve helped many student loan borrowers like you file student loan bankruptcy. Schedule a free 10-minute talk so we can discuss how I can help you do the same.

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I'm a student loan lawyer that helps people like you with their federal and private student loans wherever they live.

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