Does bankruptcy include student loans? The short answer is: usually no, but there are rare exceptions. In most bankruptcy cases, student loans are not automatically discharged, meaning you still owe them after the bankruptcy ends. However, you may be able to get student loans discharged if you can prove that paying them back causes “undue hardship.”
How Bankruptcy Treats Student Loans
When you file for bankruptcy, a court looks at your debts and decides which ones to wipe out (discharge). Most debts, like credit cards or medical bills, can be discharged. But student loans are treated differently under federal law.
Since 1976, federal student loans have been excluded from automatic discharge in bankruptcy. Private student loans also became harder to discharge after 2005. This means that even if your other debts are erased, your student loans usually remain.
What Is Undue Hardship?
Undue hardship is a legal standard that lets a judge erase student loans in rare cases. You must file a separate lawsuit (called an adversary proceeding) within your bankruptcy case. The court looks at three main factors, often called the Brunner test:
- You cannot maintain a minimal standard of living if you repay the loans.
- Your financial situation is likely to continue for a significant part of the repayment period.
- You have made good-faith efforts to repay the loans before filing.
If you meet all three, the judge may discharge part or all of your student loans. But this is very hard to prove, and only a small number of borrowers succeed.
Federal vs. Private Student Loans in Bankruptcy
Federal and private student loans are treated similarly in bankruptcy, but there are a few differences. The table below shows the key points.
| Loan Type | Discharge in Bankruptcy? | Undue Hardship Required? | Other Options |
|---|---|---|---|
| Federal student loans | Usually no | Yes | Income-driven repayment, deferment, forbearance |
| Private student loans | Usually no | Yes | Loan modification, settlement, refinancing |
| Federal PLUS loans (parent) | Usually no | Yes | Income-contingent repayment (for parent borrowers) |
What About Chapter 7 vs. Chapter 13?
Chapter 7 bankruptcy wipes out unsecured debts, but student loans usually survive. Chapter 13 bankruptcy creates a repayment plan over 3 to 5 years. During that time, you make payments to your creditors, including your student loan servicer. After the plan ends, any remaining student loan balance is still not discharged unless you win an undue hardship case.
What Happens to Your Student Loans During Bankruptcy?
Filing for bankruptcy triggers an “automatic stay.” This stops collection calls, wage garnishment, and lawsuits. But the stay is temporary. For student loans, the automatic stay pauses payments while the bankruptcy case is active. Once the case closes, you must resume payments.
If you file Chapter 13, your student loan payments may be included in your repayment plan. You might also be able to catch up on missed payments through the plan. But the loans themselves are not forgiven.
Can You Get Student Loans Discharged After Bankruptcy?
Yes, but only if you file a separate adversary proceeding and prove undue hardship. This can happen before, during, or after your bankruptcy case. Many borrowers wait until after bankruptcy to file this lawsuit, but there is no time limit. However, the longer you wait, the harder it may be to prove hardship.
Alternatives to Bankruptcy for Student Loan Relief
If bankruptcy doesn’t help, there are other ways to manage student loans. These options can reduce your monthly payment or pause payments without hurting your credit as much as bankruptcy.
- Income-driven repayment (IDR) plans: For federal loans, your payment is based on income and family size. After 20 or 25 years, any remaining balance is forgiven.
- Deferment or forbearance: Temporarily pause payments if you have economic hardship, unemployment, or illness.
- Loan consolidation: Combine multiple federal loans into one loan with a fixed interest rate.
- Refinancing (private loans): Get a new loan with a lower interest rate, but you lose federal protections.
When to Talk to a Lawyer
If you are considering bankruptcy and have student loans, talk to a bankruptcy attorney. A lawyer can help you understand your options and whether you might qualify for undue hardship. Many attorneys offer free initial consultations.
Key Takeaways
Bankruptcy rarely includes student loans. You must prove undue hardship to get them discharged, which is difficult. But there are other ways to manage your loans, like income-driven repayment or deferment. If you are struggling, explore those options before filing for bankruptcy.
In summary, bankruptcy does not usually include student loans, but you have alternatives. Always seek professional advice to protect your financial future.
Frequently Asked Questions
Can student loans be discharged in bankruptcy?
Yes, but only if you prove undue hardship in a separate court proceeding, which is very difficult to do.
Does filing bankruptcy stop student loan garnishment?
Yes, the automatic stay stops garnishment while your bankruptcy case is active, but it resumes after the case ends unless you get a discharge.
Are private student loans included in bankruptcy?
Private student loans are not automatically included, but they can be discharged under the same undue hardship standard as federal loans.
What is the Brunner test for student loans?
The Brunner test is a three-part legal standard used to decide if repaying student loans causes undue hardship, based on your income, future prospects, and good-faith efforts.
How long after bankruptcy can I file for undue hardship?
There is no time limit, but it is best to file as soon as possible after bankruptcy to avoid delays and additional interest.
