It is difficult, but not impossible to discharge student loan debt in bankruptcy. You can discharge federal and private student loans in bankruptcy. Bankruptcy is often considered a last resort option because of the impacts it can have on your credit and the costs and time involved in filing for bankruptcy. That being said, if you are struggling with debt and have student loans, it may be worth talking to an experienced bankruptcy attorney about your options.
If you file for bankruptcy, any collections and payments on your student loans and other debts will automatically be paused until the case is over or a judge says that payments should restart.
- How can I get my student loans discharged in bankruptcy?
- What can the bankruptcy judge decide to do with my student loans?
- What if my student loans aren’t discharged in my bankruptcy case?
How Can I Get My Student Loans Discharged in Bankruptcy?
Your student loans will not be automatically discharged if your bankruptcy is approved. You have to take special steps in the bankruptcy case to ask the judge to discharge your student loans. This is done by filing a petition for an adversary proceeding. In order to have your student loans discharged in bankruptcy, you have to show that you have an undue hardship.
Though it is up to the court to decide whether you have an undue hardship, if you are trying to discharge your federal student loans, during the adversary proceeding the judge will ask the federal government ( the creditor for your federal student loans) whether or not it will agree that you have an undue hardship. The government is represented by the Department of Justice (DOJ) in the adversary proceeding. At the beginning of the proceeding, the DOJ will ask you to fill out an attestation of undue hardship. If the DOJ then agrees that you are experiencing an undue hardship, it will recommend for the judge to give you a full or partial discharge of your student loans.
The factors the DOJ and the court considers when deciding whether or not you have an undue hardship can include:
- Present Ability to Pay: if you’re forced to repay your student loans, will you be able to maintain a minimal standard of living? If your expenses equal or exceed your income, the DOJ will determine that you lack a present ability to pay.
- Future Ability to Pay: can you show that your hardship will continue for a significant amount of the time left on repaying your loans? The DOJ will assume you do not have the ability to pay in the future if you are in retirement, have a disability, have a chronic injury, have a long history of unemployment, don’t have a degree, or have been in extended repayment status.
- Good Faith Effort to Repay: have you made good faith efforts to repay your student loans before filing for bankruptcy? Have you contacted the Department of Education or your loan servicer regarding payment options for your loan prior to filing for bankruptcy?
Even if the DOJ does not recommend discharging your loans, the judge does not have to agree with the DOJ’s recommendation and can still find that you have an undue hardship and discharge your loans.
Below are some examples of borrowers who have been able to discharge their student loans because of an undue hardship:
A 50-year-old student loan borrower, earning $8.50/hour as a telemarketer, was granted a discharge because they did not earn enough to pay the loans and meet their basic needs and were trapped in a “cycle of poverty.”
A borrower who received Social Security benefits due to a medical condition received a discharge because she was able to show the judge that her illness was likely to continue to prevent her from working.
A student who attended a for-profit college that lied to the student about their job prospects and earning potential was able to get their student loans discharged in bankruptcy.
A college-educated married couple proved undue hardship and were able to discharge their student loans by showing the court that they worked steadily, maintained a very frugal budget, tried an affordable repayment plan, but were still unable to meet their basic expenses.
What Can the Bankruptcy Judge Decide to Do with My Student Loans?
If the judge decides that you have an undue hardship or accepts the DOJ’s recommendation about discharging your loans, then the judge can either:
- discharge (cancel) all of your loans,
- discharge a portion of your loans, or
- change the terms of your loans to make it easier for you to repay, such as lowering your interest rate.
The judge’s decision of what to do if you have an undue hardship will also depend on which type of bankruptcy case you file (Chapter 7 or Chapter 13). In a Chapter 7 bankruptcy, you are asking a judge to cancel all of your debt, but you have to have income below a certain amount in order to qualify. In a Chapter 13 bankruptcy, you usually ask the judge to help you reorganize and lower your debt. There is no income requirement for a Chapter 13 bankruptcy, but you have to make payments on your debts in a plan the bankruptcy court sets for 3 to 5 years before the court will cancel the rest of your debts.
What if My Student Loans Aren’t Discharged in My Bankruptcy Case?
If a judge doesn’t find that you have an undue hardship, you may be able to appeal the decision. You can also look into other options managing your student loan debt, including pausing your payments through deferment or forbearance, lowering your payments by enrolling in an income-driven repayment (IDR) plan, or negotiating a settlement with your loan holder.
If your bankruptcy was already approved, but you did not ask the court to make a determination of undue hardship before the case was closed, you can ask the court to reopen your bankruptcy case. If you reopen your bankruptcy case, you have to ask for an adversary proceeding to try to discharge your student loans.