It’s a common misconception that student loans are impossible to discharge in bankruptcy. You may be able to erase federal and private student loans in bankruptcy — but it’s more difficult than wiping out most other debts.
To be successful, you must prove to a judge that being forced to repay your student loans poses what the U.S. Bankruptcy Code calls an “undue hardship.” Doing so requires filing a related lawsuit; for that, you’ll likely need an attorney.
Few people try erasing student debt in bankruptcy, but attempting a school loan discharge sometimes pays off. Of people who filed for bankruptcy in 2007 and had student loans, only an estimated 0.1% attempted to have their college debt discharged, according to a study published in the American Bankruptcy Law Journal in 2012. But of the 207 cases the study examined, 39% got full or partial student loan discharges.
In general, student loan bankruptcy may be worth exploring if you have:
- Federal student loans and can’t afford your payments even on an income-driven plan — especially if you have a serious medical condition that hinders your ability to work and/or you’re nearing retirement age.
- Private student loans that you’re highly unlikely to ever be able to repay — especially if you’re in default and are being sued by a lender attempting to garnish your wages.
- Defaulted federal direct consolidation loans that aren’t eligible for the two primary paths out of federal student loan default — rehabilitation and consolidation — because you’ve exhausted those options already.
There’s no guarantee that a bankruptcy court will discharge your student loans, even if your situation matches one of the above descriptions. To get a full or partial student loan discharge, you must meet the judge’s definition of the “undue hardship” standard.
How to prove undue hardship for student loans
Student loans are initially exempt from discharge in bankruptcy. Getting them erased requires an extra step known as an adversary proceeding, in which you must prove that the college debt poses an “undue hardship.”
The U.S. Bankruptcy Code doesn’t define undue hardship, so its meaning has been interpreted by bankruptcy courts. Different jurisdictions and judges have different interpretations of the standard, so your outcome will depend on your location and the judge you get. Most courts use what’s known as the Brunner test to determine whether bankruptcy filers meet the undue hardship standard.
To get your college debt discharged, you must prove that you meet all three prongs of the Brunner test:
1. Making student loan payments would keep you from maintaining a minimal standard of living based on your current income and expenses. To meet this prong, you generally must have bare-bones expenses and must have done everything in your power to increase your income, without success.
2. Additional circumstances make it very likely that your financial situation will persist for a significant portion of your remaining loan period. Among other things, you may be able to successfully meet this prong if you have a serious mental or physical disability, received a poor-quality education or have maximized your income potential in your field.
3. You’ve made “good faith” efforts to repay your loans. You may meet this prong by making some loan payments, attempting to negotiate a payment plan and working to slash unnecessary expenses and increase income.
How to file for student loan bankruptcy
Requesting student loan discharge comes at the end of the bankruptcy process. Here’s what you need to do first.
1. Exhaust your other options. If you have federal student loans, go on an income-driven repayment plan before pursuing bankruptcy, and consider pursuing Public Service Loan Forgiveness if your employer qualifies.
If you have private student loans, there are fewer repayment options if you’re behind or struggling to afford payments. Still, call your lender or servicer and ask whether they can temporarily lower your payment or interest rate.
2. Find a bankruptcy attorney. While an attorney isn’t absolutely necessary, working with one — especially one with at least some student loan experience — can help you navigate the complicated process more smoothly.
Filing for bankruptcy costs anywhere from several hundred to several thousand dollars, depending on your location and the case’s complexity. Plus, there are attorney fees for the adversary proceeding required to get student loans discharged.
However, you likely won’t qualify for student loan bankruptcy discharge if you can afford an attorney, says Michael Fuller, a Portland, Oregon-based consumer attorney who takes on student loan bankruptcy cases pro bono.
- Legal Services Corporation: Search for local legal aid by ZIP code
- Student Loan Borrower Assistance: This nonprofit has a list of non-LSC legal aid organizations
- Massachusetts Student Loan Bankruptcy Assistance Project
- Oregon Student Debt, Fuller’s pro bono student loan organization
3. File for Chapter 7 or 13 bankruptcy. If you haven’t yet filed for bankruptcy, do that first. Your attorney can help determine the type of consumer bankruptcy that’s best for you: Chapter 7 or Chapter 13.
If you’ve already filed for bankruptcy but didn’t attempt to have your student loans discharged, you can reopen the case and argue for them to be cleared.
4. File a complaint to begin the adversary proceeding. An adversary proceeding is a lawsuit related to the bankruptcy. To kick off the process, you — or your attorney, more likely — must file a written complaint outlining the ways in which you meet the undue hardship standard. From there, the case will be litigated until the judge determines the outcome. You may receive full discharge, partial discharge or no discharge.