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Q: What happens to student loans in chapter 7?

March 21, 2020

When you file a chapter 7 bankruptcy case, your student loans will go into an administrative forbearance/deferment. The forbearance will remain until your bankruptcy case ends. Once it ends, you’ll still owe your student loans. The only way to get rid of them is to file an adversary proceeding to discharge your student loans.

Can you include student loans in a chapter 7?

You have to put your student loan debt in a chapter 7. They have to be included because they are debts. And you’re required to list all debts on your bankruptcy paperwork.

But just because you list a debt doesn’t mean it will be included in your bankruptcy discharge.

Certain debts are not automatically discharged.

Both federal and private loans are those types of debts.

Can student loans be discharged in chapter 7 bankruptcy?

You can discharge student loans in a chapter 7 case. But it’s not automatic. You have to open a lawsuit asking the court to discharge your student loans as an undue hardship.

How to discharge student loans in chapter 7?

Here’s how to discharge student loans in chapter 7:

  1. File a chapter 7 bankruptcy case
  2. Open an adversary proceeding to discharge your student loans as an undue hardship.

To meet the undue hardship standard, you likely will have to pass the Brunner test or the totality-of-the-circumstances test.

Read Full Article: How to Pass the Brunner Test to Prove Undue Hardship

Three Prongs of the Brunner Test

  1. Based on your current income, are you unable to maintain a minimal standard of living while repaying your student debt?
  2. Is your financial situation likely to persist throughout the repayment period?
  3. Did you make a good faith effort to make your monthly payments?

If the answer is yes to all three questions, you’ve met the undue hardship standard. If any answer is no, you lose.

Regardless of which test is used, the question the bankruptcy court is trying to answer is this:

Can you make payments on your student loans throughout the repayment period while maintaining a minimal standard of living?


Answering no to this question is difficult for federal loans when the Department of Education offers income-driven repayment plans.

It’s really hard to say you can’t maintain a minimal standard of living when your monthly student loan payment is $0.

Why was my student loan account closed after filing a chapter 7

When your credit report shows that your student loan account was closed after filing chapter 7, chances are it was transferred to another company. Filing bankruptcy may trigger the insurance (guaranty) on your student loan. When that happens, your loan balance is paid by the guaranty entity and now you owe that company for your loan.

Long story short: just because your student loan account was closed after filing chapter 7, doesn’t mean you no longer owe the debt. You still have to pay back those loans.

Can I get a student loan after filing chapter 7?

You can still get federal student loans after filing chapter 7 bankruptcy. You’re eligible for federal student aid, including federal loans, unless you’re in default. Eligibility for federal student loans is not based on credit scores.

Private student loans, on the other hand, are based on credit scores. As a result, you may find it hard to get a private student loan after filing bankruptcy.

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