Yes, you can file bankruptcy on student loans, but it is harder than discharging other kinds of debt. Under current US law, you must prove that paying your loans would cause you and your dependents an “undue hardship.” This high legal standard means most bankruptcy filings do not wipe out student loan debt, but it is possible in certain situations.
This article explains what you need to know about filing bankruptcy on student loans, the legal test courts use, and what steps you can take if you are struggling with loan payments.
What Is Undue Hardship in Student Loan Bankruptcy?
To discharge student loans in bankruptcy, you must file an adversary proceeding—a separate lawsuit within your bankruptcy case. In that proceeding, you ask the judge to rule that repaying your loans would impose an undue hardship on you and your family.
Courts generally use one of two tests to decide if undue hardship exists. The most common is the Brunner test, which requires you to show three things: that you cannot maintain a minimal standard of living if forced to repay, that your financial situation is likely to continue for a significant part of the repayment period, and that you have made good faith efforts to repay your loans.
The second test, used in some courts, is the “totality of circumstances” test. This looks at your overall financial picture, including income, expenses, age, health, and whether you have tried to repay in the past.
How Hard Is It to Prove Undue Hardship?
It is very hard. Many bankruptcy judges apply the Brunner test strictly, and only a small percentage of student loan discharge requests succeed. You need strong evidence, such as medical records, proof of long-term unemployment, or documentation of a permanent disability that prevents work.
What Types of Student Loans Can Be Discharged?
Both federal and private student loans can be discharged in bankruptcy, but the same undue hardship standard applies. Federal loans include Direct Loans, Stafford Loans, PLUS loans, and Perkins loans. Private loans from banks, credit unions, or other lenders are also eligible, but you must still meet the same legal test.
However, loans that are not considered “qualified education loans” under the tax code may be treated differently. For example, if you used a credit card to pay tuition, that debt is not a student loan and can be discharged more easily in bankruptcy. But if you took out a personal loan specifically for education, it may be treated as a student loan.
What About Parent PLUS Loans?
Parent PLUS loans are federal loans taken out by parents to help pay for a child’s education. They are subject to the same undue hardship standard. If a parent files bankruptcy, they can try to discharge a PLUS loan, but they must prove undue hardship just like any other borrower.
What Are the Alternatives to Bankruptcy for Student Loans?
Before you file bankruptcy, consider other options that might help you manage your loans without the legal hurdle. These alternatives can be less damaging to your credit and your financial future.
- Income-driven repayment plans for federal loans cap your monthly payment at a percentage of your discretionary income.
- Loan forgiveness programs, such as Public Service Loan Forgiveness (PSLF), forgive remaining balances after 120 qualifying payments for eligible public service workers.
- Deferment or forbearance lets you temporarily pause payments, though interest may continue to accrue.
- Loan consolidation can combine multiple federal loans into one loan with a single monthly payment.
How Does Bankruptcy Affect Your Credit and Future?
Filing bankruptcy stays on your credit report for up to 10 years. It can make it harder to get new credit, rent an apartment, or even get a job. But if you are already struggling with overwhelming debt, bankruptcy might provide a fresh start, even if your student loans are not discharged.
| Bankruptcy Option | Effect on Student Loans | Difficulty |
|---|---|---|
| Chapter 7 | May discharge loans if undue hardship is proven | Very high |
| Chapter 13 | Loans may be included in repayment plan, but not discharged unless undue hardship | High |
| No bankruptcy | Loans remain in repayment; alternatives like IDR may help | N/A |
How to Start the Bankruptcy Process for Student Loans
If you are considering bankruptcy, start by consulting with a bankruptcy attorney who has experience with student loans. An attorney can help you understand whether you have a strong case for undue hardship and guide you through the process.
You will need to file a bankruptcy petition and then file a separate adversary proceeding to request the student loan discharge. The court will schedule a hearing, and you must present evidence to support your claim.
What Evidence Do You Need?
Gather documents that show your income, expenses, medical bills, and any attempts you have made to repay your loans. If you have a disability, include medical records and any Social Security disability determination. If you have been unemployed, include job search logs and unemployment benefit statements.
What Are the Costs and Risks of Filing?
Filing bankruptcy involves court fees and attorney fees, which can be several thousand dollars. If your case is unsuccessful, you still owe the student loans, and you may have wasted time and money. Bankruptcy also has long-term credit consequences, so weigh the pros and cons carefully.
Can You File Multiple Times?
Yes, but there are waiting periods between filings. For example, you must wait eight years between Chapter 7 discharges. However, the undue hardship standard applies every time, so a previous denial does not prevent you from trying again, but it makes it harder to show good faith.
Summary and Practical Next Steps
Filing bankruptcy on student loans is possible but rare. You must prove undue hardship in court, which is a high bar. Before filing, explore income-driven repayment, forgiveness programs, and deferment options. If you decide to pursue bankruptcy, consult an attorney who specializes in student loan law. A bankruptcy filing can offer relief from other debts, but your student loans may survive unless you win an adversary proceeding. Understanding your options is the first step toward making a smart financial decision.
Frequently Asked Questions
Can I file bankruptcy on student loans?
Yes, you can file bankruptcy on student loans, but you must prove that repaying them would cause you an undue hardship, which is a difficult legal standard to meet.
What is the undue hardship test for student loans?
The most common test is the Brunner test, which requires you to show you cannot maintain a minimal standard of living, your situation is likely to persist, and you have made good faith efforts to repay.
Do private student loans get discharged in bankruptcy?
Yes, private student loans can be discharged in bankruptcy, but you still have to meet the same undue hardship requirement as with federal loans.
How long does bankruptcy stay on my credit report?
A bankruptcy filing stays on your credit report for up to 10 years, which can affect your ability to get credit, rent, or even get a job.
What are alternatives to bankruptcy for student loans?
Alternatives include income-driven repayment plans, loan forgiveness programs, deferment, forbearance, and loan consolidation.
