Can Private Student Loans Be Discharged In Bankruptcy?

• You can discharge private student loans in bankruptcy by filing an adversary proceeding with the Bankruptcy Court.

• You must prove undue hardship or show the loans exceeded your school’s cost of attendance.

• You can file for Chapter 7 or Chapter 13, but each has different effects. Chapter 7 can provide faster relief, while Chapter 13 provides a structured repayment plan.

Struggling with private student loan debt? Bankruptcy might offer a way out. Yes, it’s possible to discharge private student loans through bankruptcy, but the process isn’t as simple as erasing other types of debt.

You may need to prove undue hardship or show the loans weren’t made for qualified higher education expenses.

Ahead, we’ll walk you through the steps, challenges, and opportunities for discharging private student loans in bankruptcy. We’ll also explain legal hurdles, key terms like undue hardship and the Brunner Test, and how to file an adversary proceeding.

Related:

• Parent PLUS Loan Bankruptcy: Before and After You File

• Borrow Student Loans After Filing Bankruptcy? Yes, Here’s How

Private student loans are very different from federal loans when it comes to eligibility, protections, and repayment options.

• Federal student loans come with helpful protections like income-driven repayment plans, deferment, forbearance, and even loan forgiveness programs. These options make it easier for student loan borrowers to manage their debt.

• Private student loans, which come from banks and other financial institutions, don’t offer as many options for relief and don’t have the same protections.

Because of this, private loans can feel like a heavier burden. But they may also be easier to get rid of or reduce in bankruptcy. Federal loans, which have more protections, are harder to discharge.

Even with new policies, like the Biden administration’s relaxed rules and the new student loan bankruptcy attestation form, federal loans are still harder to discharge.

Private loans, on the other hand, are often easier to deal with in bankruptcy. For instance, private lenders like Sallie Mae might be more willing to settle or negotiate since they don’t have the same protections as federal loans.

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

Yes, you can get a bankruptcy discharge for private student loans. To do so, you’ll need to prove “undue hardship,” which is harder to demonstrate than for other unsecured debts.

The first step is filing an adversary proceeding—a separate bankruptcy proceeding where you must prove undue hardship.

Many bankruptcy judges use the Brunner Test, which requires showing that repaying your loans would prevent you from maintaining a minimal standard of living.

Proving undue hardship based on your financial situation is the hardest part of discharging private student loans. Most courts apply the Brunner Test, which looks at three key factors:

• Minimal Standard of Living: Can you repay the loans while maintaining a basic standard of living?

• Ongoing Hardship: Is your financial hardship likely to persist for most of the loan repayment period?

• Good Faith Effort: Have you made reasonable efforts to repay, such as seeking employment or reducing expenses?

For a deeper explanation of proving undue hardship, check out these guides:

• What is Undue Hardship for Student Loans?

• Brunner Test for Discharge of Student Loans

Not all private student loans are treated equally in bankruptcy. Only loans that meet the definition of Qualified Education Loans (QEL) under section 523(a)(8) of the Bankruptcy Code are protected from discharge.

A loan qualifies as a QEL if it was used solely for eligible education expenses at an accredited institution.

But some private loans—especially those used for non-accredited programs or expenses beyond the cost of attendance (like living expenses)—may not meet this definition.

Loans from lenders like Navient or National Collegiate Student Loan Trust, often issued around 2010 or earlier, could be easier to discharge if they don’t qualify as QELs.

In these cases, it’s the lender’s responsibility to prove that the loan is protected under bankruptcy law.

Related: Student Loan Bankruptcy Law – How We Got Here

In my experience, comprehensive financial documentation is key to proving undue hardship. I typically ask my clients for:

• The past 5 years of tax returns and W-2s.

• Pay stubs from the past year.

• A detailed list of living expenses.

• A resume outlining employment history.

This information helps us build a strong adversary proceeding complaint.

It also allows me to start negotiating with private lenders, often to eliminate or significantly reduce the amount owed.

In some cases, I’ve secured deals with monthly payments for up to 20 years with little to no interest.

The next step to discharge private student loans is filing an Adversary Proceeding. This is a separate legal process within your bankruptcy case where you have to show that paying back your loans would cause you serious hardship.

Filing an Adversary Proceeding to discharge student loans is more complicated than a regular bankruptcy case and requires a lot of paperwork.

Here’s a quick look at the steps involved:

1. File the complaint: After filing for bankruptcy, submit a complaint to initiate the adversary proceeding.

2. Gather evidence: Collect documents that prove undue hardship, such as income statements, medical bills, and proof of your attempts to repay the loans to your creditor.

3. Court proceedings: A judge will review your case, and there may be hearings to determine if your loans can be discharged.

For a more detailed guide on the full process, check out this resource: Adversary Proceeding for Student Loans.

Since it can get complicated, it’s a good idea to talk to a student loan bankruptcy lawyer who can help you every step of the way.

Filing for bankruptcy will lower your credit score, and the bankruptcy will stay on your credit report for up to 10 years. But, the long-term impact may not be as severe as you expect. Many borrowers see their credit score rise to over 700 within two years after their case concludes.

If you’re already behind on student loan payments or in default, the initial damage may be less noticeable than anticipated. You can still qualify for credit products—such as mortgages, auto loans, or credit cards—within a few months of the case ending.

Lenders may offer higher interest rates at first, but with time and responsible financial habits, your credit profile can recover significantly.

Bankruptcy gives you the opportunity for a fresh start, and many borrowers are surprised at how quickly they can rebuild their financial standing.

If you’re unable to discharge your private student loans in bankruptcy, your options are limited. By this point, most borrowers have already tried alternatives like refinancing, forbearance, deferment, or income-driven repayment plans. The most common options left are:

1. Settlement Negotiations: Some borrowers can negotiate settlements with lenders, reducing the balance or agreeing to payment plans over time. While not guaranteed, this option can provide debt relief.

2. Statute of Limitations: In rare cases, borrowers try to outlast the student loan statute of limitations to avoid collections. But this strategy is risky, as lenders can sue before the deadline.

Without discharge, you may face wage garnishment, credit damage, or other aggressive collection efforts. In extreme cases, some borrowers have even left the country to avoid collections.

Bankruptcy won’t appear on your cosigner’s credit report, but the type of bankruptcy you file can affect their liability.

In Chapter 13 bankruptcy, many attorneys push borrowers with cosigners into this type of bankruptcy because it automatically pauses any collection activity against both you and your cosigner.

But Chapter 13 forces you into a 3- to 5-year repayment plan for all your debts.

In some cases, judges won’t allow you to file an adversary proceeding to discharge your loans until you’re close to completing the repayment plan, which could take up to 5 years.

In Chapter 7 bankruptcy, there isn’t the same automatic stay for cosigners, but most lenders place the loans into administrative forbearance because of the bankruptcy filing.

This effectively stops collection efforts against both you and your cosigner. Chapter 7 allows you to avoid a lengthy repayment plan, but you’ll need to file the adversary proceeding either before or shortly after your case concludes.

To learn more about how bankruptcy affects cosigners, read our full article: Student Loan Cosigner and Bankruptcy.

Discharging private student loans in bankruptcy is possible, but it’s tough. You’ll need to prove undue hardship and follow legal steps like adversary proceedings. Understanding key factors like the Brunner Test and exploring settlement options can help you make better decisions.

If discharge isn’t possible, negotiating with lenders or finding other strategies could provide some relief, though risks exist. Working with an experienced bankruptcy attorney increases your chances of success.

We’ve helped borrowers nationwide discharge loans or negotiate repayment plans. If you’re feeling overwhelmed, we’re here to assist.

Schedule a consultation to explore your options and find a way forward.