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If you’re struggling with student loan payments and other debts and are considering bankruptcy, you may have read that student loans are usually not forgiven once you file.
While that’s true in some cases, there is hope. You may be able to have your student loans discharged in bankruptcy — it’s just a longer process with more requirements, known as an adversary proceeding.
Keep in mind that while bankruptcy is an option, it has serious consequences — so you should only consider bankruptcy as a last resort.
Here’s what you need to know about filing for student loan bankruptcy:
- How does student loan bankruptcy work?
- Which type of bankruptcy filing should I use?
- Filing the adversary proceeding
- Comparing bankruptcy options
- Undue hardship and student loans
- Additional considerations
How does student loan bankruptcy work?
To have your student loans discharged in a bankruptcy, you have to show that repaying the debt would impose an “undue hardship” on you and your dependents.
If you can make a case that repaying your student loans would cause an undue hardship — and a bankruptcy judge agrees with you — the court can decide to eliminate your student loan debt. But this outcome is rare.
Just 0.1% of student loan debtors who file for bankruptcy have their education debt discharged, according to research published in the Duke Law Journal.
So before considering bankruptcy to get rid of your student loans, consider other options for stopping or reducing your monthly payments, including consolidation, deferment, forbearance, and income-driven repayment plans.
If you do decide to file bankruptcy, it should be because you’re struggling financially with other debts, such as credit cards, personal loans, and auto loans. If student loans are your only debt, you’re unlikely to qualify for a bankruptcy discharge.
You have two options for filing for a personal bankruptcy: Chapter 7 or Chapter 13. Whichever type of filing you choose, you’ll also have to take an additional step to file an adversary proceeding.
Keep in mind: Whatever you do, don’t ignore the problem. If you can’t pay your federal student loans and they go into default, the IRS may keep any tax refund due to you and apply it toward your loan.
Keep Reading: Income Driven Repayment: Which Plan Should You Choose?
Which type of bankruptcy filing should I use?
The U.S. Bankruptcy Code contains six different types of bankruptcy, and each of them is named after the chapter of the code that addresses them. The two available to individuals are Chapter 7 and Chapter 13.
Chapter 7
A Chapter 7 bankruptcy is also known as a liquidation. In this type of filing, a court-appointed trustee sells non-exempt assets (such as jewelry or a valuable collection) and distributes the proceeds among creditors.
Here’s what you can expect, in no particular order:
- Exemptions can vary by state: You’re usually allowed to keep your home, the vehicle you drive to work, clothing, and household items.
- Discharged debts: Once your case is complete, the court will discharge all your eligible debts, such as credit card debts, personal loans, promissory notes, medical bills, lawsuit judgments, and obligations under leases and contracts.
- Debts that can’t be discharged: Certain kinds of debts are never discharged in a Chapter 7 bankruptcy, including child support, alimony, fines and penalties for breaking the law, certain tax debts, and debts arising from killing or injuring someone while driving under the influence of drugs or alcohol.
- Qualifications: To qualify for Chapter 7 bankruptcy, you have to pass a means test, which is a calculation done using Form 122A-2. The means test is designed to determine whether you’re financially able to repay a portion of your debts. If the analysis determines you can afford to pay some of your debts, then you won’t qualify for Chapter 7 and may consider filing a Chapter 13 bankruptcy.
Chapter 13
A Chapter 13 bankruptcy is also known as a “wage earner’s plan.” In this type of filing, you work with an attorney to come up with a plan to pay your creditors in installments over a three- to five-year period. During this time, your creditors aren’t allowed to pursue collection.
At the end of your repayment term, the court discharges any remaining eligible debts, and you get to keep your assets.
You must meet the following requirements to qualify for Chapter 13 bankruptcy:
- You have enough regular monthly income to fulfill your proposed repayment plan.
- You must undergo credit counseling from an approved credit counseling agency within 180 days of filing your bankruptcy petition. You can find a list of approved credit counseling agencies from the U.S. Department of Justice.
- You must be up-to-date on filing your income tax returns.
- You have total secured and unsecured debts of less than $2.75 million as of your filing date.
Filing the adversary proceeding
An adversary proceeding is the extra step you must take to ask the courts to discharge your student loans as part of a bankruptcy case. It’s essentially a lawsuit filed separately from but related to your bankruptcy case.
After filing for bankruptcy, you’ll draft a complaint that identifies your student loan creditors and asks the judge to wipe out your debt because repaying it would cause an undue hardship.
You may also need to include details and additional documentation establishing your financial situation and why you can’t afford to pay off your student loans. Then file your adversary proceeding with your local U.S. Bankruptcy Court Clerk’s office.
The clerk’s office will send you instructions for notifying each of your student loan creditors. Lawyers for the creditors will respond to the suit — likely to argue that your student loan debt isn’t eligible for a discharge.
Ultimately, your case will end in one of three ways:
- Settlement: You and the creditor agree to settle your student loan debt for less than the full amount you owe.
- Dismissal: You, the creditor, or the judge may request to have the case dismissed.
- Decision by a judge: If your case isn’t dismissed or settled, the judge will decide whether or not your loans should be fully or partially discharged.
Learn More: 11 Strategies for Paying Off Your Student Loans Faster
When to file an adversary proceeding
You should file your adversary proceeding immediately after filing for a Chapter 7 or Chapter 13 bankruptcy.
Somewhere between 21 and 40 days after you file your bankruptcy petition, the trustee will hold a meeting of the creditors. During this meeting, you must answer questions posed by the trustee and your creditors under oath.
Good to know: If your student loan creditors want to contest your adversary proceeding, they generally have 60 days from the date of this meeting to let the court know.
Comparing bankruptcy options
Filing for bankruptcy will damage your credit score — possibly lowering it by hundreds of points. Chapter 13 bankruptcy is generally looked on more favorably by credit bureaus than a Chapter 7 bankruptcy because at least you’ll pay some of what you owe. However, it’s still a big decision and should only be considered as a last resort.
Here’s a table outlining the differences between both options:
| Chapter 7 | Chapter 13 | |
|---|---|---|
| Who can file | Anyone who meets the means test | People with enough regular monthly income to fulfill their proposed repayment plan |
| General timeframe | 4 to 6 months | 3 to 5 years |
| Filing fee | $338 (plus attorney fees) | $313 (plus attorney fees) |
| Credit score effect | Lowers your credit score and remains on your credit report for 10 years | Lowers your credit score and stays on your credit report for seven years |
| Relief available | Discharges all eligible debts | Discharges remaining eligible debts after successful completion of repayment plan |
Undue hardship and student loans
To have your student loans discharged in bankruptcy, you need to demonstrate to a judge that repaying your loan would cause undue hardship. There’s unfortunately no one-size-fits-all answer to what undue hardship means, so each court has had to develop its own definition.
Many courts rely on the Brunner test to evaluate whether paying your student loans would cause an undue hardship. Under the Brunner test, you must prove:
- Your current income and expenses prevent you from maintaining a minimal standard of living if you had to repay your student loans.
- Your financial situation is likely to continue for a significant part of the loan repayment period.
- You made a good-faith effort to pay the loan by attempting to increase your income and lower your expenses.
Other courts have decided that the Brunner test is too restrictive and instead use the Totality of Circumstances test. For this test, the court considers the following when deciding whether you can afford to repay your student loans:
- Past, present, and future financial resources
- Reasonable living expenses
- Other relevant factors
Ultimately, whether you qualify to have your student loans discharged in bankruptcy depends on your financial situation, which test the courts use, and which judge decides your case.
Additional considerations
Proving undue hardship under an adversary proceeding can be tough. But it’s not always necessary. Certain kinds of debts associated with education expenses can be discharged in bankruptcy without filing an adversary proceeding or meeting the undue hardship standard, according to the Consumer Financial Protection Bureau.
These debts include:
- Loan amounts that were greater than the cost of attendance (including tuition, books, and room and board) and were paid directly to you instead of your college or university
- Loans to pay for educational expenses at a place that isn’t eligible for Title IV funding (this can include unaccredited colleges, schools in a foreign country, or unaccredited certificate programs)
- Loans made to cover your fees and living expenses while studying for the bar exam or another professional exam
- Loans made to cover fees, living expenses, and moving costs while completing a medical or dental residency
- Loans to cover your education expenses while attending school less than half-time
Tip: If any of your loans fall into one of the above categories, talk to a bankruptcy attorney about getting them discharged as part of your regular bankruptcy filing.
Bankruptcy can be an effective way to get out of crushing debt if you’re in dire financial straits. But if you’re not facing serious financial hardship, then pursuing it just to get rid of your student loans can be a waste of time and money. If you fall into the latter camp, those resources would be better spent pursuing more realistic ways to manage your student loan debt.
Even if you don’t qualify for discharge, you have other options for lowering your interest rate or monthly payment on private student loans, including refinancing your student loans.
When you compare student loan refinancing rates with Credible, you can get rates from up to 10 lenders without affecting your credit score.
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About the author 
Janet Berry-Johnson
Janet Berry-Johnson is an authority on income taxes and small business accounting. She was a CPA for over 12 years and has been a personal finance writer for more than five years. Janet has written for several well-known media outlets, including The New York Times, Forbes, Business Insider and Credit Karma. In 2021, Canopy named her one of the Top 10 Influential Women in Accounting and Tax.
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