How to File for Student Loan Bankruptcy

Student loan bankruptcy can provide relief if you’re struggling to repay what you owe. The bankruptcy code authorizes the discharge of student loan debt when a borrower can demonstrate undue financial hardship.

Filing bankruptcy for student loans is different from filing bankruptcy for credit cards and other types of debts. Here’s a closer look at who’s eligible and how it works.

Can you file for bankruptcy on a student loan? 

Bankruptcy Code section 523(a) allows for the discharge of student loans. Discharge means a court legally removes your liability to repay a debt.

Student loan bankruptcy is available to borrowers who can demonstrate undue hardship. The bankruptcy code doesn’t define what that means exactly; instead, the court has historically used what’s called the Brunner test to determine who qualifies. 

This test requires you to prove three facts:

1. You’re unable to maintain a minimal standard of living for yourself (and dependents, if you have them) if you’re forced to repay your loans.
2. Your financial hardship is unlikely to change for the foreseeable future.
3. You’ve made a good-faith effort to pay your loans.

If you can pass those tests, which is notoriously difficult for most debtors, you could have your student loans discharged. 

Here’s what to know about student loan bankruptcy:

• The bankruptcy code doesn’t specify a limit on how much student loan debt you could discharge. 
• If you qualify, federal and private student loan debt can be discharged in bankruptcy. 
• The court may approve a partial or full discharge of your loans based on your circumstances. 
• Depending on which chapter you file, you may need to turn over some of your assets to the bankruptcy court. 

The student loan bankruptcy process has two parts: a bankruptcy petition and a separate action called an adversary proceeding. We’ll cover how each step works when we explain how to file student loan bankruptcy a little further on. 

I have not experienced a client facing the need to pursue student loan bankruptcy, but it is my understanding that this is a worst-case scenario where an individual has no other options either due to a single factor or a combination of the following factors: 

• Extreme financial hardship (which can happen to anyone)
• Disability causing them to be unable to work
• Large loan balances or persistent debt that become unmanageable (even with a reliable income source)
• Having private loans that do not offer the relief that comes with federal loans

Erin Kinkade, CFP®

What to know about student loan bankruptcy laws

Bankruptcy laws have existed in the U.S. since the 1800s, but the current stringent standards for student loans have only been in place since the mid-1970s. Congress passed the Education Amendments of 1976 to narrow the scope of student loan bankruptcy over fears that borrowers might skip out on their obligations to their lenders. 

The amendments mentioned undue hardship as the exception, but that concept wasn’t defined until 1987 in Brunner v. New York State Higher Education Services Corp.

If you’re trying to navigate the undue hardship standard for student loan bankruptcy, I recommend consulting a financial counselor or legal representation specializing in this area. This is a complex task and requires detailed, comprehensive records of one’s financial condition.

Erin Kinkade, CFP®

Student loan bankruptcy laws haven’t changed much since then, although the Biden Administration introduced measures to make it easier for borrowers to get their federal student loans discharged. Here’s how it works:

• Borrowers submit documentation attesting to their financial situation and hardship. 
• The government reviews this document and determines whether the borrower meets the undue hardship standard. 
• If the borrower meets the standard, the government can waive opposition to the discharge of their loans. 

Under this new guidance, discharging student loans is meant to be easier since both sides agree on the outcome. 

How do you file bankruptcy on student loan debt?

If you plan to file bankruptcy for federal student loans, you’ll first need to decide which chapter to file. Most people choose one of the following:

• Chapter 7. Chapter 7 bankruptcy allows you to eliminate debts included in your filing; in exchange, you may need to turn over some of your assets to the bankruptcy court.
• Chapter 13. Chapter 13 bankruptcy lets you restructure your debt and pay off what you owe over three to five years. The upside is you get to keep your assets. 

To file Chapter 7, you must pass a means test, which measures your ability to pay your debts based on your income, expenses, and household size. If you qualify, it’s important to familiarize yourself with bankruptcy exemption rules in your state to determine which assets you may have to give up. 

Once you decide which chapter to file, here’s what you’ll do next. 

1. Complete credit counseling with an approved agency. 
2. Fill out the forms for the bankruptcy chapter you plan to file. 
3. Submit these forms to the bankruptcy court nearest you, and pay the filing fee. 
4. File a request for an adversary proceeding. 
5. Submit a financial attestation form detailing the specifics of your hardship and why you can’t pay your loans. 
6. Complete a meeting of creditors if required by the court. 
7. Complete debtor education. 
8. Wait for the court’s decision. 

The most important step is the adversary proceeding. Without that, the court won’t consider your loans for discharge. 

When a bankruptcy plaintiff (that’s you) files an adversary proceeding, they’re essentially lodging a formal complaint against a bankruptcy defendant. If you’re filing student loan bankruptcy for federal loans, the government is the defendant and is represented by the Justice Department. 

If you’ve filed your petition, initiated the adversary proceeding, and completed your financial attestation, the court will rule on your case. The court can:

• Fully discharge your loans, meaning you don’t need to pay them anymore
• Partially discharge your loans, meaning you must pay something toward what you owe
• Deny your petition altogether

If the court chooses number three from this list, consider your alternatives to student loan bankruptcy. 

Do you need an attorney to file student loan bankruptcy? The court doesn’t require debtors to have an attorney. However, it could make sense to have an experienced lawyer on your side to help you navigate what can be a confusing process. 

What is the likely impact of filing bankruptcy on a student loan?

Filing for bankruptcy on student loans can have long-lasting effects on your credit and financial future. Here’s what typically happens and the consequences to consider:

Impact on your credit score

A bankruptcy filing stays on your credit report for seven to 10 years, depending on whether you file for Chapter 7 or Chapter 13. This can damage your credit score, affecting your ability to secure future credit, including mortgages, car loans, and even employment opportunities in some cases.

Financial future and borrowing limitations

With bankruptcy on your record, lenders may consider you a higher-risk borrower, restricting access to new credit or applying higher interest rates on any new loans. This can make large purchases harder to finance and may require reliance on secured forms of credit with higher fees or interest rates.

Impacts on personal assets and disposable income

Bankruptcy often requires liquidating some assets in Chapter 7 or adherence to a structured repayment plan in Chapter 13, limiting financial flexibility and affecting disposable income. While essential assets, including a home and a car, are often protected, rebuilding savings or investing in future goals can become challenging.

Strain on mental and emotional well-being

The bankruptcy process can be lengthy, complex, and emotionally taxing. Because student loans are challenging to discharge, many people go through bankruptcy without reducing their student debt load. 

The uncertainty of potential discharge, coupled with the legal process, can add significant stress and emotional strain during an already difficult time, compounding the stigma and stress often associated with bankruptcy.

Bankruptcy has lasting impacts, particularly for student loans, which often don’t benefit from the same relief as other types of debt.

Should you file for student loan bankruptcy? 

Student loan bankruptcy might seem appealing if you’re in dire financial straits, but be sure to weigh the pros and cons. Here are scenarios where you might decide to move ahead with a bankruptcy filing for federal student loan debt. 

If …	Is bankruptcy an option?
You’re unemployed and unable to pay anything toward your loans.	Yes, if you can demonstrate that your employment situation is unlikely to change in the long term, which may be difficult.
You’re significantly past due on payments and in danger of default.	Maybe, if you think you might need to stop paying your loans altogether in the near future because of a significant financial hardship.
Your loans are in default, and you don’t believe you’ll be able to resume payments.	Yes, default could be a reason to file bankruptcy if you’re reasonably sure you won’t be able to resume making payments.

You may also consider bankruptcy if you owe private student loans eligible for an automatic discharge in a standard filing. Examples of these debts include:

• Loans made to attend schools that aren’t eligible to participate in federal student aid programs
• Loans you took out to attend school less than half-time
• Loans that exceeded your cost of borrowing
• Loans made to cover fees and living expenses while you studied for the bar exam or other professional exams or completed a medical or dental residency
• Other loans made for nonqualified higher education expenses

With these types of student debt, a separate adversary proceeding wouldn’t be necessary. You would, however, still need to meet the means test to qualify for bankruptcy. 

Alternatives to bankruptcy if you’re struggling with student loan debt 

Bankruptcy may seem like a solution for overwhelming student loan debt, but it should be a last resort due to its lasting impact on your credit and the difficulty in discharging student loans through bankruptcy. 

Here are alternatives that may help you manage student loan debt more effectively:

Income-driven repayment (IDR) plans

Federal student loans offer IDR plans that adjust monthly payments based on income and family size. These plans can lower payments significantly and may lead to loan forgiveness after a certain period, often 20 to 25 years.

Student loan forgiveness programs

Depending on your career or where you work, you may qualify for forgiveness programs that eliminate part or all of your federal student loans. Public Service Loan Forgiveness (PSLF) is available for those working in government or qualifying nonprofit roles, and Teacher Loan Forgiveness is for educators in low-income schools. Military service, healthcare, and other fields also have forgiveness options.

Deferment or forbearance

If you’re temporarily struggling, deferment and forbearance allow you to pause or reduce your federal student loan payments. Deferment is generally best because it may pause interest accrual on Subsidized Loans, but both can offer relief if you’re experiencing financial hardship, health issues, or unemployment.

Refinancing your student loans

Refinancing could lower your monthly payments by offering a new loan with a lower interest rate. However, refinancing federal loans into a private loan means you’ll lose federal protections, including IDR plans and forgiveness options. Still, this option could help those with stable incomes and strong credit scores reduce their debt burden.

Debt management counseling

If managing payments or budgeting feels overwhelming, debt management counseling can help. A credit counselor can work with you to create a repayment strategy and may negotiate with lenders on your behalf. While they can’t reduce the principal on student loans, they can assist with financial planning and may help you find other options for reducing overall expenses.

Explore temporary income solutions

Side jobs, freelance work, or even selling unused items could bring in extra income. While not a permanent solution, these options may provide enough support to cover your payments, at least until you stabilize financially or access a more sustainable plan.

Each of these options has specific benefits and limitations. Evaluating which best fits your needs can help you avoid the need for bankruptcy.