You can file for bankruptcy on federal and private student loans, but you won’t get rid of the debt until you file an adversary proceeding.
If you’re struggling to pay back your student loans, you might be able to persuade a bankruptcy judge to discharge your debt. You’ll need to file a Chapter 7 or Chapter 13 bankruptcy case first and then file a separate lawsuit called an adversary proceeding and prove that repayment would impose an undue hardship on you and your dependents.
This process is long, complex, and potentially expensive — unless you do it yourself. But if you’re successful, discharging student loan debt in bankruptcy can give you the financial and emotional relief you need.
Ahead, learn how to file bankruptcy on student loans.
Can bankruptcy get rid of student loan debt?
You can file bankruptcy on federal and private student loan debt. But the hurdles are high, and discharges are rare.
When the bankruptcy laws were first created years ago, you could file for bankruptcy and get rid of your student loan debt along with your credit card debt, medical bills, and other consumer debts. But starting in the 1970s, lawmakers slowly began tweaking the Bankruptcy Code to make student loans harder to discharge. Learn who made student loans nondischargeable.
After the changes, you have to do two things to get a discharge of student loan debt:
- File a Chapter 7 or Chapter 13 bankruptcy case.
- Bring a separate lawsuit — called an adversary proceeding — to ask the court to wipe out your student loan debt because repaying it will cause you and your dependents an undue hardship.
This second step, proving undue hardship, is challenging because bankruptcy courts across the country use different tests to measure what type of hardship repaying your loans will cause you: ordinary or undue — more on those tests below.
Undue hardship standard
The Bankruptcy Code doesn’t define “undue hardship”, so courts needed to develop their own definition. Most judges adopted the Brunner Test, named for the case that created it — Brunner v. New York State Higher Education Services.
The Brunner Test presents a high bar that few bankruptcy filers clear. You have to prove three things to get your student loans discharged:
- Based on your current income, you can’t maintain a minimal standard of living for yourself and your dependents while making your monthly payments.
- Your financial situation is likely to persist throughout the repayment period.
- You made a good-faith effort to repay the loans.
A handful of other courts use a more flexible standard, the totality of the circumstances test. Scholars and bankruptcy attorneys argue that this test is easier to pass because it allows judges to look at additional facts and circumstances. But in practice, few people who come up against the test can overcome it and get a fresh start.
Over the years, I’ve looked at many of these cases and found a pattern. Many people fail to pass either test because they do a poor job of demonstrating the severity of their financial situation and the efforts they’ve made to improve it.
Before you try to discharge student debt, take time to gather evidence of your past earnings, your efforts to increase your income, and the steps you’ve taken to keep up with your student loan payments. It’ll help you or your lawyer present a more persuasive case.
Learn More: How to Prove Undue Hardship for Student Loans
How to get student loans discharged
There are a few steps you need to take before using bankruptcy to shed your student loan debt.
1. Find a lawyer. You don’t need to hire an attorney, but hiring the right one can help you get through the bankruptcy proceedings quicker and more efficiently. Finding the right attorney can be challenging. Most bankruptcy attorneys have never filed a student loan adversary proceeding. You may end up hiring an attorney to handle your bankruptcy filing and then hiring a student loan bankruptcy lawyer to battle the Brunner Test.
2. File student loan bankruptcy. You have to file for bankruptcy before you can file the lawsuit to shed your education loans. Chapter 7 bankruptcy cases are usually the cheapest and fastest option. The court will award you a bankruptcy discharge in a few months. But you have to pass the means test to qualify. You’ll need to file for Chapter 13 bankruptcy if you don't.
Those cases are more expensive because the legal fees are higher, and you have to make payments to your creditors (e.g., Chapter 13 plan) over the next three to five years.
Your attorney can help determine which type of bankruptcy is best for you.
*The bankruptcy will stay on your credit report for up to 10 years.
3. File an adversary proceeding. You’ll need to file a written complaint, called an adversary proceeding, with the court to ask the judge to erase your student loans. Your case will continue until you reach an agreement with the loan holder or the judge decides what happens.
Here are likely outcomes after filing a case to discharge student loans:
- 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.
- The court awards a partial discharge if the judge thinks you can pay some of your loans.
- The court denies discharge if you fail to prove your financial hardship is undue.
- You negotiate a settlement where the loan holder (i.e., the Department of Education, a private lender, etc.) agrees to let you pay less than you owe in a lump sum or over several years. Read more about
- Your case is dismissed if you don’t follow the bankruptcy process (e.g., not delivering the paperwork to the right company).
Alternatives to filing bankruptcy on student loans
If bankruptcy isn’t for you, there are other ways to get relief from your student loans:
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 better rates and terms to refinance your private loans. Read more about how to refinance a student loan with bad credit.
Consolidate for a single monthly payment. You can combine federal student loans into a new Direct Consolidation Loan for free by submitting an application to your loan servicer or on the Federal Student Aid website. The new loan will qualify you for payment plans that will lower your monthly bill and
Request a deferment or forbearance. If you’re experiencing a temporary hardship, ask your servicer for repayment options that let you lower your payments or pause them for a few months with a deferment or forbearance. Read more about who to contact if you have questions about repayment plans?
Apply for an income-driven repayment plan. The Education Department lets you make payments based on your income and family size for 20 to 25 years. After your final payment, it writes off the remaining balance. Read more about income-driven repayment plan forgiveness.
Check your eligibility for forgiveness programs. Not only does the department offer student loan forgiveness after 20 years, but it also has other programs that will erase your debt if you work for the government or a nonprofit or if you become permanently disabled. Read more about these federal student loan forgiveness programs.
Want to file bankruptcy to discharge student loans?
The process to get rid of student debt in bankruptcy is filled with obstacles. It makes sense to hire a lawyer who has helped other people successfully navigate it to get a discharge.
Since 2014, I’ve helped student loan borrowers across the United States navigate the bankruptcy process to shed the debt that their lawyer told them was nondischargeable.
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 of bankruptcy.
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