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Can You File Bankruptcy On Student Loans?

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Posted on January 28, 2025 in

You can file bankruptcy on student loans, but it depends on your circumstances, and the process is complicated. Education loans remain a non-dischargeable debt under 11 U.S.C. Section 523. This means student loans are not automatically discharged in your bankruptcy case. 

However, they can be fully or partially discharged by filing an adversary complaint against the Department of Education. This is a lawsuit filed separately from your administrative bankruptcy case. Historically, this has been very expensive with a low success rate. 

Through the adversary case,  it must demonstrate that repaying the student loans would impose an undue hardship on you and your dependents under the Brunner test.

Here’s a quick overview of the process

  • Hire an experienced student loan bankruptcy attorney.
  • File for bankruptcy (Chapter 7 or 13).
  • Initiate an adversary proceeding for student loans.
  • Prove undue hardship using the Brunner test.
  • Negotiate a settlement with the student loan lender.

To improve your chances of discharging a student loan, consult a bankruptcy attorney who works on student loan cases. They know the new student procedures, can help you navigate the process, gather necessary evidence, and present a strong case for undue hardship. 

As of November 2022, the Justice Department and the Department of Education have set new guidelines for a “more accessible process to ensure consistent treatment of the discharge of federal student loans,” resulting in an increase in successful partial or full student loan discharges. With these new guidelines, your bankruptcy attorney can offer a more predictable and affordable process. 

Contact a Stone Rose Law bankruptcy lawyer to find out if you qualify for bankruptcy on your student loan debt by calling (480) 498-8998 or using our contact form.

can you file bankruptcy on student loans

What Are My Options or Alternatives to Filing Bankruptcy On Student Loans?

You have several options for filing bankruptcy on your federal student loans, but it’s important to understand that the process is challenging and requires proving undue hardship. Here are your main options:

File for Chapter 7 or Chapter 13 Bankruptcy

Chapter 7 is for those with lower incomes, while Chapter 13 involves a repayment plan. Your attorney can help you decide which option is possible and the best route to take against your student loan.

File an Adversary Proceeding

After filing for bankruptcy, your attorney will file a separate action called an adversary proceeding, a complaint against the lender that demonstrates that repaying the loan would cause undue hardship and should be discharged. The bankruptcy court issues a summons, and your attorney serves it to the lender. Your lawyer provides proof of hardship, which will generally trigger negotiations with the Department of Education. If negotiations are unsuccessful, an evidentiary hearing will be set before the bankruptcy court. 

The Brunner Test

The Brunner test is a three-part test the bankruptcy court uses to determine if your loan causes undue hardship. To pass the test, you must demonstrate that you cannot maintain a minimal standard of living while repaying your student loan debt. You must also prove that your financial situation is unlikely to improve in the foreseeable future and that you’ve made an effort to repay the loan in the past.

New Federal Guidelines

The new guidelines have made it easier to show “under hardship”. The following factors are considered:

  1. Are your student loans federal or private? 
  2. Did you finish the degree for which you obtained your student loans?
  3. Are you employed?
  4. Have you made any payments on your student loans?
  5. Are there special circumstances impacting your ability to pay your student loans?

Consider a Partial Discharge

Even if you can’t get a full discharge, the Department of Education may agree to discharge a portion of your loans or modify the terms to make repayment easier. The court will work with you and the lender to negotiate a repayment plan for the partial discharge.

Comparing Chapter 7 and Chapter 13 Bankruptcy for Student Loans

It is possible to file a Chapter 7 or Chapter 13 bankruptcy to discharge a student loan. However, each form of bankruptcy has different requirements, processes, and results. Let’s take a closer look:

Chapter 7 BankruptcyChapter 13 Bankruptcy
Duration3-6 months3-5 years repayment plan
Loan TreatmentStudent loans remain after discharge unless undue hardship is provenStudent loans are treated as nonpriority unsecured debts
Payment During BankruptcyNo payments are required during bankruptcyReduced payments are possible through a repayment plan
Effect on Other DebtsMost unsecured debts are dischargedDebts paid off or partially paid through a repayment plan
Asset LiquidationNon-exempt assets may be soldKeep assets while making payments
Credit ImpactSevere, stays on credit report for 10 yearsLess severe, stays on credit report for 7 years
EligibilityMust pass the means testThere are no income limits, but you must have regular income
Student Loan DischargeRequires separate adversary proceedingRequires separate adversary proceeding
Interest AccrualInterest continues to accrueInterest continues to accrue
Post-BankruptcyFull loan amount due after dischargeNew payment schedule based on remaining balance

How Do I Know if I Qualify for Bankruptcy for My Student Loans?

Here are some criteria to test if you qualify to file for student loan bankruptcy.

Evaluate Your Financial Situation

Consider your overall financial situation. Are you struggling to pay basic living expenses like rent, food, and utilities while making student loan payments? If so, it could indicate potential eligibility.

Assess Your Financial Hardship

You should also assess whether your financial hardship is likely to continue for a significant portion of your loan repayment period. Look at factors such as permanent disability, chronic unemployment in your field, or other long-term financial challenges.

Review Your Loan Payment History

Have you made consistent efforts to repay your federal student loans? Before filing for bankruptcy, have you explored options like income-driven repayment plans, deferment, or forbearance? Courts look favorably on borrowers who have tried to manage their loans responsibly. 

Look at Your Loan Type

While both federal and private student loans can be discharged, federal loans require a higher burden of proof. 

Your Age and Health

Your age and health status may also play a role, as courts may be more sympathetic to older borrowers or those with health issues. 

We recommend consulting with our Phoenix bankruptcy attorney to determine your qualifications. We can provide a detailed assessment of your situation and guide you through filing for bankruptcy to discharge your student loan.

How Can a Bankruptcy Attorney Help Me Discharge My Student Loan?

An experienced bankruptcy attorney knows the Title 11 Federal Bankruptcy Code and how to apply it to your situation. They can guide you through the bankruptcy process and help you avoid mistakes that can derail your case. An attorney will also be able to tell you if you qualify to discharge your federal student loan debt and the reasons why or why not. They will work on your behalf to get you the best outcome for your case.

An experienced bankruptcy attorney can assist you by:

  • Evaluating your financial situation
  • Preparing and filing bankruptcy documents
  • Starting the adversary proceeding for your loans
  • Gathering evidence to support your claim
  • Negotiating with loan servicers
  • Representing you in court

Your bankruptcy attorney will help show that paying back your student loans would cause undue hardship. They’ll manage all paperwork and process all documents by the deadline. Working with an experienced attorney gives you the legal leverage you need when attempting to discharge your student loans.

Frequently Asked Questions About Bankruptcy and Student Loans

Here are some additional questions people ask about bankruptcy and their student loans.

What happens to student loans in Chapter 7?

Student loans remain after discharge unless you prove undue hardship through an adversary proceeding. You may get some or all of your student loans discharged if successful. If not, you’ll still owe the loans after your bankruptcy case concludes.

Do I need to file a separate action for student loans in bankruptcy?

You must file an adversary proceeding within your bankruptcy case. It’s necessary to address the discharge of your student loans.

Can private student loans be discharged in bankruptcy?

Private loans may be easier to discharge than federal loans in some cases. However, you still need to prove undue hardship to the court.

How likely am I to succeed in discharging student loans?

Nearly 40% of debtors who include student loan debt in bankruptcy get some or all of their student loans discharged. Your chances depend on your circumstances and how well you present your case.

What documentation do I need for a student loan bankruptcy case?

Financial records, loan documents, evidence of hardship, and proof of good faith efforts to repay are necessary. Having thorough documentation can strengthen your case.

How long does the process take?

Depending on the complexity of your case, it can take several months to over a year. Delays can occur if additional evidence or hearings are needed.

Will bankruptcy affect my eligibility for future student aid?

Generally, bankruptcy alone shouldn’t affect eligibility for federal student aid. However, defaulting on loans may impact your ability to receive aid.

Can I discharge only part of my student loans?

Some courts may consider partial discharge if you meet the hardship criteria. It may alleviate some of your financial burden while still requiring repayment of other amounts.

What alternatives should I consider before bankruptcy?

Income-driven repayment plans, deferment, forbearance, and loan consolidation are options worth exploring. These alternatives provide temporary relief without the long-term consequences of bankruptcy.

How does bankruptcy affect my credit score?

Bankruptcy can lower your credit score and remain on your credit report for 7-10 years. As a result, it may be harder to secure future loans or credit.

Contact Our Phoenix Bankruptcy Law Firm for a Free Consultation

You should never assume that your student loan debt is immune to bankruptcy. Whether you have a private or federal student loan, you may still have options for discharging it in a Chapter 7 or Chapter 13 bankruptcy. Stone Rose Law can assess your case and help you navigate the bankruptcy process to get the best outcome possible.

Fill out our online form or call Stone Rose Law at (480) 498-8998 to consult our Phoenix bankruptcy attorney. Let us help you get a fresh start.