Student Loan Bankruptcy: Can You File and What Happens Next?

• You can file bankruptcy on student loans despite common myths that you can’t discharge student loans.

• You first need to file Chapter 7 or Chapter 13 bankruptcy and then you will file a lawsuit against your student loan lender, arguing the student debt is an undue hardship to you and your dependents.

• The hardest part about filing a student loan bankruptcy is finding a bankruptcy attorney whose willing to file these types of cases.

Can you file bankruptcy on student loans? The answer isn’t straightforward. While it’s difficult, bankruptcy can sometimes provide relief from overwhelming student loan debt—if you meet specific legal standards.

As a student loan lawyer with over a decade of experience handling bankruptcy cases across the nation, I’ve helped countless borrowers navigate this complex process. I also train other bankruptcy attorneys on how to handle student loan cases, so you’re getting guidance from someone deeply familiar with the challenges involved.

In this guide, we’ll:

• Break down the key aspects of filing for bankruptcy on student loans,

• Explain how Chapter 7 and Chapter 13 bankruptcy apply

• Share what happens to your student loans during the process

• Offer options to explore if bankruptcy isn’t right for you

We’ll also cover recent changes in the law and offer alternatives for managing your debt, such as income-driven repayment or student loan forgiveness programs.

Yes, but discharging student loans through bankruptcy is difficult. You must meet strict legal requirements under the Bankruptcy Code.

Unlike other types of debt, such as credit card balances or medical bills, student loans are treated differently in bankruptcy. To have your loans discharged, you’ll need to prove that repaying them would cause an “undue hardship.”

Most courts use the Brunner Test to determine whether your financial situation qualifies as an undue hardship. This test looks at three key factors:

• Minimal Standard of Living: Can you maintain a basic standard of living for you and your dependents while repaying your student loans?

• Financial Outlook: Is your financial situation likely to improve over time, or is your hardship expected to continue?

• Good Faith Efforts: Have you made an effort to repay your loans, such as attempting to make payments or exploring repayment plans?

The Brunner Test makes discharging student loans more challenging than other types of debt, but it’s not impossible.

I’ve filed several student loan bankruptcy cases for borrowers across the United States. Some have gotten their federal and private student loans completedly discharged. Others have gotten partial discharges.

The common denominator is that they typically have experienced long-term unemployment or underemployment, illness, or other personal hardship that it’s made it difficult to pay their living expenses while repaying their student debt.

Related: Why Can’t You File Bankrupcty on Student Loans?

Before filing bankruptcy against your student loans, you need to know there are two types of bankruptcy: Chapter 7 and Chapter 13. Each one affects your loans differently.

Chapter 7 Bankruptcy

Chapter 7 is usually the faster and cheaper option. It’s often the best choice for people who don’t have significant income or assets, but qualifying can depend on your financial situation.

Here’s how Chapter 7 works for student loans:

• Eligibility for Discharge: Discharging student loans in Chapter 7 requires filing a separate lawsuit called an adversary proceeding. In this process, a bankruptcy court will determine if you meet the undue hardship standard, which decides whether repaying your loans would prevent you from maintaining a minimal standard of living.

• Liquidation of Assets: In Chapter 7, some of your assets might be sold to repay creditors, but certain personal property is protected under state laws. Even then, student loans aren’t discharged unless you can prove undue hardship.

• Outcome: If the court rules in your favor, your student loans may be partially or fully discharged.

Related: How to Prove Undue Hardship for Student Loans

Chapter 13 Bankruptcy

Chapter 13, also called “reorganization bankruptcy,” is typically for people who have a higher-than-average income for where they live, own a home with equity in it, or have a significant amount of cash in their checking or savings account. But 401(k) and pension accounts are usually protected.

Here’s how Chapter 13 affects your student loans:

• Repayment Plan: In Chapter 13, your student loans are included in a court-approved repayment plan, which means you’ll continue making payments for the duration of the plan.

• Discharge After Repayment: At the end of the plan, most unsecured debt can be discharged, but student loans usually remain unless you prove undue hardship.

• Protection for Cosigners: One advantage of Chapter 13 is that it protects your cosigners from collection efforts by private lenders. It also gives you a chance to catch up on missed payments and reorganize your finances.

Related: What Happens to Student Loans in Chapter 13?

When you file for bankruptcy, it can provide immediate relief from student loan collections, even though discharging loans requires additional steps.

• Automatic Stay on Collections: Once you file, an automatic stay halts all collection efforts, including wage garnishments, lawsuits, and payment demands from student loan servicers. While the automatic stay doesn’t discharge your loans, it stops collections and student loan lawsuits, giving you breathing room during the bankruptcy process. [Link to related article]

• Adversary Proceeding to Discharge Loans: Discharging student loans requires filing a separate lawsuit called an adversary proceeding. This process allows the court to determine if repaying your loans would cause undue hardship. While it sounds complicated, an adversary proceeding often doesn’t require hours in court. If your case does go to trial, you may need to take the stand to tell your story—but by that point, your attorney will have you well-prepared.

• Court Review and Decision: During the adversary proceeding, the court applies tests like the Brunner Test to determine if you meet the undue hardship standard. The process is challenging, and not every case succeeds, but it’s the necessary step for seeking student loan relief through bankruptcy.

Related: How to File an Adversary Proceeding on Student Loans

Your chances of getting student loans discharged in bankruptcy depend largely on your personal circumstances and whether your loans are federal or private.

Federal Student Loans

Recent guidelines from the U.S. Department of Education and Department of Justice have made it easier to discharge federal student loans, particularly for borrowers facing long-term financial difficulties. But the criteria remain strict. Typically, those most likely to succeed include:

• Individuals with long-term unemployment or very low income for at least the past 10 years.

• Borrowers who attended for-profit schools and didn’t receive the value they were promised from their education.

• People who didn’t graduate, or those in their 50s or older, who have been burdened by student loans for decades.

Without these hardship factors, discharging federal loans can be more difficult, but it’s not impossible. For example, recent graduates with lower balances may struggle to prove a sustained inability to repay. Courts generally look for a combination of factors that show long-term financial hardship.

Private Student Loans

Your chances of discharging private student loans are generally higher. Unlike federal loans, private lenders offer fewer flexible repayment options or forgiveness programs. If you’re earning a modest income and can’t keep up with your private loan payments, bankruptcy might provide a more effective solution.

Here’s why:

• Private lenders often lack long-term relief options, such as refinancing or temporary rate reductions through deferment and forbearance. These fixes are usually temporary and may not provide the lasting relief you need.

• If you’ve exhausted all other options and still can’t manage your debt, bankruptcy could lead to a better outcome, like restructuring your payments or achieving partial forgiveness.

In many cases, bankruptcy might not result in a full discharge of your loans, but it can lead to more manageable terms or partial forgiveness.

Related: Can You File Bankruptcy on Private Student Loans?

Factors That Improve Your Chances

No matter what type of loan you have, borrowers with the best chances for discharge typically:

• Have had their loans for several years.

• Have made efforts to repay through alternative repayment plans or by increasing their income.

• Are struggling to maintain a minimal standard of living while repaying their loans.

While a full student loan bankruptcy discharge isn’t always possible, the goal is to find a solution that makes your financial future more manageable. By working with a knowledgeable bankruptcy attorney, you can evaluate your options and determine the best path forward based on your specific situation.

If bankruptcy isn’t an option for managing your student loans, there are still several alternatives that can provide relief. Depending on your situation, you can find a more manageable way to deal with your debt.

For federal loans, borrowers have access to a range of options:

• Income-Driven Repayment Plans (IDR): Reduce your monthly payments based on your income, with potential forgiveness after 20 to 25 years.

• Public Service Loan Forgiveness (PSLF): If you work in a qualifying public service job, you may be eligible for loan forgiveness after 120 qualifying payments.

• Total and Permanent Disability Discharge: If you’re unable to work due to a permanent disability, you may qualify for a complete discharge of your federal loans.

• Borrower Defense to Repayment: If your school engaged in misconduct, you might qualify for loan discharge based on the school’s fraudulent activities.

While federal loans offer more flexible programs, private loans typically present fewer options for long-term relief:

• Refinancing: You may be able to lower your interest rate or payments by refinancing your private loans.

• Negotiated Settlements: If you can’t manage payments, negotiating directly with your lender for a reduced payoff could provide relief.

If none of these options make your debt manageable, bankruptcy may still offer the most effective path toward relief. For some, it can lead to restructuring or partial forgiveness of loans.

In most cases, these programs offer substantial relief without needing to file for bankruptcy. But if you’re already considering bankruptcy due to other debts, including your student loans might make sense.

Related: Can You File Bankruptcy on Sallie Mae Student Loans?

Over the past few years, several legal reforms have started to reshape how bankruptcy courts handle student loans, making it easier for some borrowers to discharge their debt.

DOJ and Department of Education Guidelines

In 2022, a new process and guidelines from the Department of Justice and the Department of Education made it easier for borrowers to prove undue hardship, which is required to discharge federal student loans in bankruptcy. These guidelines encourage courts to take a more lenient approach in assessing borrowers’ financial situations.

Biden Administration’s Push for Reform

The Biden administration has been advocating for legislative changes that could make it easier for borrowers to discharge their student loans through bankruptcy. Although no major reforms have been passed yet, there is growing political support for changes to the current system.

Court Cases Shaping the Future

Several recent court cases, such as Reynolds v. PHEAA, are helping to set new precedents for how student loan bankruptcy cases are handled. These cases reflect a shift towards more borrower-friendly rulings under specific conditions, providing hope for those struggling with student debt.

For a deeper dive into the latest legal reforms, court cases, and proposed legislative changes, check out our full article on Student Loan Bankruptcy Law and Reform Bills.

Filing for bankruptcy can provide relief from student loan debt, but it also brings financial and emotional costs. If you’re considering bankruptcy for your federal or private student loans, you need to know the potential expenses and risks.

Costs of Filing for Bankruptcy

The costs of filing for bankruptcy vary depending on the complexity of your case. Here’s a breakdown of the general costs:

• Federal Student Loan Bankruptcy: Fees for handling federal student loan bankruptcy cases typically start at $4,500. This covers filing your bankruptcy petition, initiating an adversary proceeding, and representing you throughout the process.

• Private Student Loan Bankruptcy: For private student loan cases, costs range between $5,500 and $25,000. These cases often require more legal negotiation, which can increase fees based on the complexity and size of the debt.

• Additional Costs: You’ll also need to cover court filing fees (usually a few hundred dollars) and any required credit counseling or financial management courses, which can add to the overall cost.

Risks of Filing for Bankruptcy

Bankruptcy can provide significant relief, but it’s important to weigh the risks:

• Impact on Credit: Filing for bankruptcy will negatively affect your credit score and remain on your credit report for up to 10 years. This can make it harder to secure loans, rent housing, or qualify for certain jobs.

• No Guarantee of Discharge: Even after going through bankruptcy, there’s no guarantee that your student loans will be discharged. You’ll need to meet the strict criteria of the Brunner Test or another legal standard, and outcomes can vary depending on the court.

• Loss of Assets: In a Chapter 7 bankruptcy, some of your non-exempt assets could be liquidated to pay creditors. Essential assets are usually protected, but this depends on your financial situation and state laws.

• Emotional and Legal Stress: The process can be emotionally exhausting. It involves extensive paperwork, possible court appearances, and potential delays. Having an experienced student loan bankruptcy lawyer can help, but the stress is something to prepare for.

The Hardest Part: Accepting Bankruptcy as a Solution

For many people, the hardest part about filing for bankruptcy isn’t the process—it’s accepting that bankruptcy is the right solution. By the time you’re considering bankruptcy, you’ve likely exhausted all other options and have been trying to keep up without success.

This isn’t about failure; it’s about getting the help you need when the world you’re living in just isn’t working anymore. If you’ve been holding off on major life decisions—whether it’s getting married, buying a home, starting a family, switching careers, or even retiring—because of overwhelming student loan debt, bankruptcy might be the key to unlocking the future you’ve been putting on hold.

Whether you achieve a full discharge, partial discharge, or use bankruptcy as leverage for negotiating a settlement, it’s about finding a solution that lets you regain control of your financial life.

Filing for bankruptcy on student loans is challenging, but with the right legal guidance, it’s possible to find relief.

Whether you’re exploring Chapter 7, Chapter 13, or alternative repayment options, understanding the process and your chances of success is critical. If you’re struggling with overwhelming student loan debt and want to explore your options, we can help.

Book a call with us to discuss your situation and get personalized advice on managing your student loans.

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