You CAN discharge student loans in bankruptcy, but you’ll have to do a little extra work by filing an adversary proceeding, and you need to meet eligibility requirements. It’s gotten a little easier in recent months for federal student loan borrowers to discharge their student debt in Chapter 7 bankruptcy. This article explores three key things to know if you want to file for bankruptcy to erase your student loan debt.
Written by Attorney Kassandra Kuehl.
Updated June 9, 2023
Yes, student loans can be eliminated through bankruptcy! In fact, if you have federal student loans, the process has gotten a little easier thanks to guidance from the Department of Justice and Department of Education that was released in late 2022. Still, student loans are treated differently from other debts in bankruptcy. So, here are three things you should know if you’re considering bankruptcy to deal with your student loan debt.
1. Getting Your Student Loans Discharged Isn't Automatic
Different types of debt are treated differently in bankruptcy. This can get a little complicated, but we break it down in our Guide To Erasing Debt in Chapter 7. Essentially, Chapter 7 bankruptcy is a great legal tool to get rid of unsecured debts like credit card debt, medical bills, personal loans, or payday loans. Even though student loans are unsecured debts (that is, they aren’t backed by collateral like a car loan or mortgage), they aren’t automatically wiped out along with your other debts once you get your bankruptcy discharge.
Nevertheless, it is possible to get your student debt discharged.
To get rid of student loan debt you have to file an adversary proceeding after you file your bankruptcy case. Technically, this means that you’re filing a lawsuit. But practically speaking, you’re simply asking the court to determine whether your situation meets the undue hardship standard that allows the judge to discharge your student loan debt. The adversary proceeding process looks a little different for federal student loan borrowers than it does for private student loan borrowers. We've outlined the process for both in our article on filing a successful adversary proceeding.
If you’ve filed for Chapter 7 bankruptcy, you can file an adversary proceeding immediately after filing your case with the court. If you’re intimidated by this process, that’s okay! Upsolve is here to help. Use our eligibility screener to see if you qualify for free help. We’ve helped thousands of people get over $600 million in debt discharged in Chapter 7 bankruptcy since 2017… and we don’t charge a penny.
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2. You Have To Prove Undue Hardship — Here's What That Means
Filing bankruptcy involves a lot of paperwork. You’ll have to fill out over 20 forms and provide documentation on your financial situation to back up the information in those forms. The good news is that when it comes to the adversary proceeding, you’ll have already gathered all the information you need for your bankruptcy petition. The forms for the adversary proceeding ask questions about your income, expenses, and student loan debt. You’ll also have a chance to provide other information about why you’re struggling to pay your student loans and how long you’ve been trying to repay them. For example, maybe you or one of your dependents has a permanent disability.
The goal of this is to show the Bankruptcy Court that repaying your student loans is causing you undue hardship. (You may hear this referred to as the Brunner test.) While the Bankruptcy Code (the set of bankruptcy laws in the U.S.) doesn’t say much about student loans, it does say filers have to prove that their student loan payments are causing undue hardship.
Here are the three questions the bankruptcy judge will ask to see if you meet the undue hardship standard:
If you have to continue repaying on your student loan repayment plan, will you be able to maintain a minimal standard of living?
Will repaying your loan cause financial hardship indefinitely (or at least for the life of the loan)?
Have you made a good faith effort to repay your loan?
If the answer to all three of the above questions is “yes,” then the judge assigned to your case may choose to grant you a full student loan discharge or a partial discharge. Alternatively, if you aren’t granted a full or partial discharge, you may be able to secure a lower interest rate, negotiate a lower monthly payment amount, get an extension of your repayment period, or request a temporary deferment of your obligations.
3. You Can Discharge Student Loans Even if Your Monthly Payment Is $0
If you're on an income-driven repayment plan (IDR plan) for your federal student loans, your current monthly repayment amount has been calculated based on your income and household size. Sometimes this means your monthly payment is very low or even $0. The bankruptcy court may opt to discharge your student loans even if your IDR monthly payment obligation is $0/month. In fact, this may help your case as it supports the idea that repaying your loans is causing you and your family undue hardship.
If you haven’t yet applied for an IDR adjustment to your repayment terms, you should consider doing so before filing an adversary proceeding. Failure to do so may be seen as a lack of good faith effort on your part to repay your loans under the Brunner test. You can also prove good faith by applying for forbearance or deferment on your loans.
BONUS: Upsolve Can Help You File Student Loan Bankruptcy for Free
Upsolve is a nonprofit that has helped thousands of people discharge over $600 million of debt since 2017. And the best news is that we provide the help for free. If you have federal student loans you want to erase as part of your Chapter 7 case, take our screener now to see if you're eligible for free help. It only takes about five minutes to see if you qualify.
If you have private student loans, you’ll probably need to hire a bankruptcy attorney to help you with the adversarial proceeding in your bankruptcy process. You can get a free consultation to get more information about this and decide whether it’s worth it for you.