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

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Yes, there is a process you can follow in bankruptcy to try to have your student loans discharged, called an adversary proceeding.

First, you need to file Chapter 7 or Chapter 13 bankruptcy. Then you must file an adversary proceeding, at which you must prove “undue hardship” according to the Brunner test or totality-of-the-circumstances test.

Most people, many lawyers included, believe that you can't discharge student loans in bankruptcy. But that's simply not true. Read this guide to understand that process and how student loan bankruptcy works.

What is student loan bankruptcy?

Student loan bankruptcy is a process where a debtor files bankruptcy, then files a complaint to discharge their higher education student loan debt.

Under bankruptcy law, there's not a specific type of bankruptcy called student loan bankruptcy. Instead, most people file what is referred to as consumer bankruptcy cases, Chapter 7 or Chapter 13.

Filing bankruptcy under either of those chapters will eliminate credit card debt, medical bills, personal loans, repossessions, etc.

But it doesn't get rid of all types of debts.

Some debts, such as student loan debt, remain until you file a lawsuit called an adversary proceeding.

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.

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.
  • 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.
  • How do I know if my student loans were discharged? To know if your student loans were discharged, you must have filed an adversary proceeding and gotten a court order discharging your loans. If your student loan accounts show on your credit report as $0 after filing bankruptcy, that does not mean your loans were discharged. The court order is your only sure bet to tell.
  • 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.

Why student loan debt is treated differently

How is bankruptcy different for student loans? Bankruptcy is different for student loans than it is for other items like credit card debt. In bankruptcy, student loan debt is not automatically discharged. Courts may decide how much you pay each month.

Over the years, the United States Congress has decided to stop people from getting rid of their debts (not just student loans) by declaring bankruptcy.

Congress has made these debts non-dischargeable:

  • Child support
  • Alimony
  • Certain tax debts
  • Criminal restitution

After the federal government started offering federal loans, Congress chose to do the same for student loan debt.

Student loans became non-dischargeable in the late 1970s when Congress added Section 523(a)(8) to the U.S. Bankruptcy Code. This was to protect the U.S. Department of Education from borrowers racing to bankruptcy after graduating.

Over the years, Congress has amended Section 523(a)(8) to protect different types of federal loans (e.g., Direct Loans, Federal Family Education Loans (FFEL), and Federal Perkins Loans) and private loans as well.

Currently, Section 523(a)(8) protects a student loan from discharge (except in undue hardship) if:

  • It was made or insured by the federal government
  • It was made under a loan program funded by the federal government or a nonprofit
  • It is a qualified education loan according to the IRS's criteria

Your private loan may be dischargeable without having to prove undue hardship in an adversary proceeding if:

  • The private student loan was not insured or funded by the federal government or a qualifying non-profit
  • The private 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: The Process To Discharge

The student loan bankruptcy process is not incredibly complicated — although you will likely need to hire a bankruptcy attorney or student loan attorney to navigate the legal process with you.

I don’t typically recommend trying to discharge student debt in bankruptcy. Most adversary proceedings are unsuccessful.

However, if you meet the following criteria, you are more likely to succeed in discharging student debt in bankruptcy:

  • You already filed for bankruptcy
  • You were sued by one of their private lenders
  • Your loan balance is double your annual income
  • Your interest rate is so high that it causes negative amortization
  • You can't afford a debt settlement
  • Your loan servicer refuses to offer payments or payment plans that you can afford

If this sounds like you, then keep reading for step-by-step instructions. If you don’t meet these criteria, you may want to scroll down to “alternatives to student loan bankruptcy” for more options.

When to file student loan bankruptcy

There's no set time to “file student loan bankruptcy.” You can file it before your overall bankruptcy case closes. Bankruptcy law also allows you to file it after the court closes your bankruptcy case.

From my perspective as a student loan lawyer, I recommend that people file student loan bankruptcy when:

  • They can no longer afford their private student loans and can't afford a settlement
  • They have a physical disability that limits their ability to work but does not qualify them for a total and permanent disability discharge
  • They have defaulted a second time on a federal student loan and can't get out of default
  • They cannot get a professional license (e.g., medical school graduates, law school graduates, etc.)
  • They are elderly and have made a good faith effort to repay their student loans

If you're ready to file student loan bankruptcy, the next step is to meet with a bankruptcy attorney and determine what bankruptcy you should file: Chapter 7 or Chapter 13.

Chapter 7 Bankruptcy

Completing Chapter 7 bankruptcy will eliminate your consumer debt (credit cards, medical bills, etc.). It will not automatically wipe out your student debt.

The discharge order you receive from the court should list the debts you're entitled to have discharged, which won’t include child support, certain debts owed to the government (e.g., tax debt), and student loans.

People often believe Chapter 7 discharged their student loan debt because their student loan accounts are “closed” when they check their credit reports. However, that likely indicates your account was closed with one creditor. You still owe the loans to someone.

Most likely, your loan will be sent to another collection agency or loan servicer who will start demanding student loan payments within a month or so.

Filing Chapter 7 by itself does not get rid of student loan debt. There are 3 total steps to take when attempting to discharge those loans.

  • Step 1: File Chapter 7 bankruptcy.
  • Step 2: File an adversary proceeding.
  • Step 3: At the proceeding, ask the court to discharge your student loan debt because of undue hardship.

Until you successfully complete all 3 steps listed above, you remain responsible for your student loans.

‍Does Chapter 7 include student loans? Your student loans are listed on your Chapter 7 bankruptcy paperwork, but they are not included to be discharged. You need to file an adversary proceeding to discharge your student loan debt.

Can you get financial aid while in Chapter 7? Yes, you can get federal student aid while in Chapter 7. Federal law prohibits the government from refusing you access to student loans and grants because you filed for bankruptcy.

However, filing bankruptcy is considered an adverse event, which can leave graduate students and parents ineligible for Parent Plus Loans.

Chapter 13 Bankruptcy

When you file Chapter 13, your bankruptcy attorney prepares a plan to repay your secured debt and unsecured debt over the next 3-5 years. Your student loans will be included in that Chapter 13 plan.

To discharge your federal or private student loan debt, you must file an adversary proceeding and prove undue hardship — just like with Chapter 7.

Many debtors complete this overall repayment plan, never making a payment towards their student loan debt.

As a result, their loan balance grows, and they miss out on earning credit towards student loan forgiveness programs like income-driven repayment plan forgiveness and Public Service Loan Forgiveness.

Read this guide to understand what to do with your student loans in Chapter 13.

When to file an adversary proceeding

After you file bankruptcy, the next step to get a student loan discharge is to file an adversary proceeding (AP). In bankruptcy proceedings, legal professionals refer to lawsuits as APs.

A borrower or cosigner can start the student loan bankruptcy process by filing an AP and asking the bankruptcy judge to discharge federal or private loans due to undue hardship.

Chapter 7 bankruptcy cases are over quickly (2-4 months). You may need more than a few months to increase your chances of getting a bankruptcy discharge. Good thing you can file an AP even after your bankruptcy case closes.

Federal law does not set a deadline for filing an AP to discharge student loans. You can file the AP before or after your case closes.

Chapter 13 cases take 3-5 years to complete. You don't receive a discharge until after you make your final payment under your plan. Consequently, different jurisdictions may force you to wait until your Chapter 13 is almost over before they'll let you file an AP and discharge student debt.

Proving undue hardship

Bankruptcy law does not define undue hardship for student loans. As a result, whether your student loans are causing you undue hardship or just ordinary financial hardship is decided by your bankruptcy judge.

Most bankruptcy judges use the Brunner test to see if borrowers meet the undue hardship.

The Brunner test is a three-part test that looks at your:

  1. Current income
  2. Potential future income
  3. Past good faith effort to make monthly payments on your student loans

Using the Brunner test, a judge will decide if making student loan payments prohibits you and your dependents from reaching a minimal standard of living.

In Arkansas, Iowa, Minnesota, Missouri, North Dakota, and South Dakota, bankruptcy lawyers use the totality-of-the-circumstances test. The totality of circumstances test looks at most of the same factors the Brunner test looks at.

This test (used in a minority of courts) also helps judges determine whether additional circumstances make student loan repayment an undue hardship for you and your dependents.

It is difficult to prove undue hardship. However, if your income has hovered near the poverty line for multiple years, your chances of getting a student loan discharge increase.

Cost to file bankruptcy on student loans

The bankruptcy court does not charge court fees to file student loan bankruptcy. It should not cost you anything to file with the court. However, hiring an attorney will probably cost you. (But you should probably still hire an attorney. We’re worth it.)

The fee you paid your bankruptcy attorney to file Chapter 7 or Chapter 13 does not include the attorney filing an AP for student loans. That’s probably going to cost extra.

Therefore, unless you find an attorney willing to file the AP at a reduced rate, you may have to spend a few thousand dollars hiring a student loan bankruptcy lawyer.

Changes to bankruptcy law

Over the years, different members of Congress have introduced legislation to make student loans dischargeable in bankruptcy like other types of debts. Unfortunately, that legislation has gone nowhere.

While the battle rages on over student loan debt forgiveness, Senator Elizabeth Warren (D-Mass.) introduced another proposal to change the treatment of student loan debt in bankruptcy.

Sadly, like the legislation before it, the Consumer Bankruptcy Reform Act of 2020 has yet to go anywhere.

The bipartisan FRESH START Through Bankruptcy Act of 2021, sponsored by Senators Dick Durbin (D.-Ill.) and John Cornyn (R-Texas), would simplify student loan bankruptcy discharge to achieve. (Click here to download the bill.) It is still in committee as of September 2021.

Alternatives to student loan bankruptcy

Bankruptcy is not the best fit for everyone, and 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

Refinance for a lower interest rate

Depending on your student loan balance, credit score, and income, you may be able to 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.

Consolidate for a single monthly payment

Consolidating federal student loans means combining existing federal loans into one single Direct loan. 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 single monthly payment.

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.

Apply for an income-driven repayment plan

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

Any loan balance remaining after you make your final payment will be forgiven.

Check eligibility for discharges

The federal government and some private lenders may discharge your student loan debt due to total and permanent disability.

You may be entitled to a discharge if your school misrepresented your ability to transfer credits. If the school promised you’d get a job you never got, or if it closed, you could be eligible for discharge or debt cancellation.

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.

On top of that, you 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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Hey, I’m Tate.

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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