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Filing for bankruptcy for student loans: What you need to know

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Filing for bankruptcy is never ideal, but there are situations where having debt discharged is the only way forward. This is true for medical debt, credit card bills and even student loans, although the type of bankruptcy you should pursue (Chapter 7 or Chapter 13) depends on many factors, such as your ability to work in any capacity.

Many people believe that you cannot discharge student loans in bankruptcy, but this isn’t always the case. There are processes you can follow to attempt to have your student loans discharged, but you will have to prove that you are facing something called “undue hardship” to qualify.

Key takeaways

  • To get student loans discharged, you’ll need to prove that they cause you “undue hardship.”
  • Borrowers can choose between Chapter 7 and Chapter 13 bankruptcy, but they must file a separate adversary proceeding for student loans.
  • Recent court cases and proposed bills suggest that student loan discharge through bankruptcy may become easier in the future.

How to file for bankruptcy on student loans

Declaring bankruptcy on student loans is not easy, and it will affect more than just your college debt. Here are the steps to follow:

  1. Find a lawyer. The first step to filing for bankruptcy with student loans is locating a lawyer who has expertise in this area. Working with knowledgeable legal counsel can help you navigate the process. However, you should know that bankruptcy can cost thousands of dollars, and being able to afford the attorney fees may mean that you’re ineligible for discharge based on undue hardship.
  2. Seek a free consultation. Some student loan lawyers might offer a free consultation. If so, take advantage of it. An attorney can go over your options and let you know if bankruptcy is a viable option for your situation.
  3. Decide if you will file for Chapter 7 or Chapter 13 bankruptcy. You’ll need to choose between Chapter 7 or Chapter 13 bankruptcy, which have different rules regarding which assets you keep and what you’re required to pay. Your attorney can help you consider your bankruptcy options and determine which is the best fit for your financial situation.
  4. File a separate adversary proceeding to discharge your student loans. This filing is similar to a lawsuit, but it happens in bankruptcy court. During the proceeding, you’ll have to meet the undue hardship standard. According to the U.S. Department of Education, you must be able to “demonstrate that repayment would impose undue hardship on you and your dependents.” Your creditors or representatives of your creditors may also show up at the proceeding to challenge your claims.
  5. Wait on a decision. There are several potential outcomes to an adversary proceeding. The court may decide to grant your petition to discharge all of your student loans. It might also opt to grant a partial discharge of part of your loans, or no discharge at all.

Chapter 7 vs. Chapter 13 bankruptcy

Which type of bankruptcy should you consider? The answer to that question depends on your ability to work and receive a regular income, as well as the outcome you hope to achieve.

The two most common types of bankruptcy for consumers are Chapter 7 and Chapter 13. Here is how they differ.

Chapter 7 Chapter 13
Main features All nonexempt assets will be sold to repay some of the debts you owe You’ll keep your property, but you must repay your debts on an agreed-upon timeline
What assets do you keep? Some personal items and possibly real estate (depending upon the state you live in) Generally all property; your home may be safe from foreclosure
Who qualifies? You must have an average monthly income lower than the median income for your state or pass a means test You must earn a regular income and show an ability to repay your debts
How long does the process take? Typically four to six months for debt discharge Three to five years on a repayment plan
How long does it stay on your credit report? 10 years 7 years

How to prove undue hardship for student loans

While undue hardship can look different for each person, this term is used to describe a situation where it would be practically impossible for you to repay your student loans. Historically, it has been a high threshold for student loan borrowers to meet.

There are three prongs to proving undue hardship:

  1. Undue hardship would describe any situation where someone cannot pay their student loans and pay for a roof over their head or put food on the table. If you racked up significant student loan debt but became incapacitated and unable to work after a car wreck, for example, you could potentially qualify. If you are unable to maintain a minimal standard of living, you could prove that repayment of the student loan is an undue hardship.
  2. Undue hardship also needs to be likely to continue for a significant portion of the loan repayment period, notes the U.S. Department of Education. In other words, a medical student who is drowning in debt cannot file bankruptcy on their loans, have them discharged and then go on to earn a significant income a few years later.
  3. You also have to make a good faith effort to repay your loan before moving forward with bankruptcy. If you don’t, it’s less likely that you’ll be successful in bankruptcy court.

What happens if the bankruptcy court doesn’t discharge my loans?

Once you move forward with Chapter 7 or Chapter 13 bankruptcy, four possible scenarios might play out. You could see all of your student loans and other debts wiped away completely, your loan could be partially discharged or you could have to repay your loan under better terms, such as with a lower interest rate or monthly payment. You may also fail at having the terms of your loans changed at all during bankruptcy proceedings, which is a possibility you should be aware of.

If the courts do not find your claim of undue hardship adequate to qualify for bankruptcy, you may have no choice but to carry on in an effort to repay your loans. Some of the options you can consider at this point include:

  • Switch your payment plan on federal loans. Note that you may be able to tweak your repayment plan and repay your student loans over up to 30 years, which could drastically lower your monthly payment.
  • Apply for an income-driven repayment plan. Income-driven repayment plans let you pay a percentage of your discretionary income for 20 to 25 years before ultimately forgiving your remaining loan balances. Because your payments will fluctuate with your income, your payments could be much lower than they are now.
  • Look for other loan forgiveness programs. Public Service Loan Forgiveness (PSLF) is available for individuals who are willing to work in qualifying public service positions and make payments on an income-driven repayment plan for 10 years. There are also other types of loan forgiveness plans you can explore.
  • Ask for temporary deferment or forbearance. If you need temporary relief from your federal student loans, look into deferment and forbearance, both of which let you pause payments on your loans for a limited period of time. Just remember that interest may continue accruing during forbearance, which could make your problem worse.
  • Refinance your student loans with a private lender. This option won’t work for everyone, but you could refinance your student loans with a private lender that might offer a lower interest rate or a monthly payment that you can afford. Just remember that you lose federal benefits like deferment, forbearance and access to income-driven repayment plans when you refinance federal loans with a private company.

Additional considerations and where to find student loan help

Personal feelings, court decisions and federal legislators appear to be aligning to change the student loan bankruptcy landscape. Last year, student loan servicer Navient attempted to dismiss a borrower’s case to have student loans eliminated through bankruptcy, but the courts rejected the motion.

There have also been two bills introduced that would allow borrowers to seek bankruptcy discharge for student loans. The FRESH START Through Bankruptcy Act of 2021 addresses federal student loans, while the Private Student Loan Bankruptcy Fairness Act addresses private student loans.

On top of this, the Student Borrower Protection Center released a report claiming that only a very narrow subset of private student loans fits the definition of “qualified education loans,” meaning there could be millions of borrowers who have student loan debt eligible for discharge.

With that said, just a month before the Navient decision, U.S. Supreme Court justices refused to hear a case from a woman in Texas who was seeking the discharge of her private student loans. This signaled that the same high hurdle of proving undue hardship remains intact in many cases, at least until lawmakers address lasting changes.

All of this sounds confusing, because it is. With everything in flux, it’s important to have the latest and most accurate information. Here is where you can find additional student loan help:

  • A good student loan attorney. When you decide to file for bankruptcy with student loans, find an attorney who has experience with these kinds of cases.
  • The Federal Student Aid website. The official U.S. government website has a page on the discharging of student loans.
  • Consumer advocacy organizations: If you’re worried about defaulting on your student loans, there are plenty of national organizations that can help you apply for different repayment options, investigate debt payoff plans or explore loan rehabilitation.

The bottom line

There’s hope that the ability to have student loans of all kinds discharged might become easier in the future. But for now, getting your student loans discharged means proving that the repayment of your student loans will create an undue hardship on you.

Learn more:

Written by
Michelle Black
Contributing writer
Michelle Lambright Black is a credit expert with over 19 years of experience, a freelance writer and a certified credit expert witness. In addition to writing for Bankrate, Michelle's work is featured with numerous publications including FICO, Experian, Forbes, U.S. News & World Report and Reader’s Digest, among others.
Edited by
Student loans editor