Can You File Bankruptcy on Student Loans?

It’s a common misconception that you can’t file for bankruptcy for student loans. It is possible to discharge student loans in bankruptcy, but it’s more difficult than wiping out most other debts.

Federal student loans are less likely to be discharged in bankruptcy due to their repayment options and strict standards around "undue hardship."

But private student loans don't offer the same repayment options or protections as federal ones. There are also signs bankruptcy for private student loans is getting easier.

On July 15, 2021, a New York-based federal appeals court ruled private student loans are not protected from discharge in bankruptcy.

However, because of the potential costs and financial impact of bankruptcy, examine your debt relief options before making a decision.

» MORE: Can you discharge student loans in bankruptcy?

Here’s how filing bankruptcy for student loans works, and how to determine if this is the right choice for you.

How to file for student loan bankruptcy

Discharging student loans comes at the end of the bankruptcy process. Here’s what you need to do first.

1. Find a bankruptcy attorney. While an attorney isn’t absolutely necessary, working with one — especially one with at least some student loan experience — can help you navigate the complicated process more smoothly.

Filing for bankruptcy costs anywhere from several hundred to several thousand dollars, depending on your location and the case’s complexity. Plus, there are attorney fees for the adversary proceeding required to get student loans discharged.

However, you likely won’t qualify for student loan bankruptcy discharge if you can afford an attorney, says Michael Fuller, a Portland, Oregon-based consumer attorney who takes on student loan bankruptcy cases pro bono.

Here's where to find free legal help:

• Legal Services Corporation: Search for local legal aid by ZIP code.

• Student Loan Borrower Assistance: This nonprofit has a list of legal aid organizations by state.

• Massachusetts Student Loan Bankruptcy Assistance Project: A group of attorneys and law firms offering free representation for adversary proceedings.

• Oregon Student Debt: A pro bono student loan organization.

2. File for Chapter 7 or 13 bankruptcy. You must file for bankruptcy before your student loans can be discharged. Your attorney can help determine the type of consumer bankruptcy that’s best for you: Chapter 7 or Chapter 13.

If you’ve already filed for bankruptcy but didn’t attempt to have your student loans discharged, you can reopen the case and argue for them to be cleared.

3. File a complaint to begin the adversary proceeding. Erasing student loans through bankruptcy requires an additional lawsuit known as an adversary proceeding. To kick this off, you — or your bankruptcy attorney, more likely — must file a written complaint outlining your case. From there, the case will be litigated until the judge determines the outcome. You may receive full discharge, partial discharge or no discharge.

» MORE: How borrower defense to repayment works

How to prove undue hardship for student loans

To discharge student loans via bankruptcy, you will have to prove they pose an “undue hardship” during your adversary proceeding.

The U.S. Bankruptcy Code doesn’t define undue hardship, so bankruptcy courts have different interpretations for its meaning. Most use what’s known as the Brunner test to determine whether bankruptcy filers’ student loans meet the undue hardship standard.

You must prove that you meet all three parts of the Brunner test to get your college debt discharged:

1. Making student loan payments would keep you from maintaining a minimal standard of living based on your current income and expenses. To meet this, you generally must have bare-bones expenses and must have done everything in your power to increase your income, without success.

2. Additional circumstances make it very likely that your financial situation will persist for a significant portion of your remaining loan period. Among other things, you may be able to successfully meet this if you have a serious mental or physical disability, received a poor-quality education or have maximized your income potential in your field.

3. You’ve made "good faith" efforts to repay your loans. You may meet this prong by making some loan payments, attempting to negotiate a payment plan and working to slash unnecessary expenses and increase income.

Different jurisdictions and judges have different interpretations of these standards so your outcome will depend on your location and the judge you get.

» MORE: Is there a statute of limitations on student loans?

Should you file student loan bankruptcy?

While student loan bankruptcy discharge is possible, it’s likely only worth exploring in the following instances:

• You’ve exhausted all payment options. If you have federal student loans, see if you can afford income-driven repayment or qualify for a loan forgiveness program. Private student loans have fewer options for struggling borrowers. Still, call your lender or servicer and ask whether they can temporarily lower your payment or interest rate.

• You’re past-due on your student loans. If you haven't missed payments, you’ll likely have a hard time proving your loans are causing undue hardship. Bankruptcy makes more sense in instances of student loan default — especially if you have defaulted on private student loans and your lender is suing you in an attempt to garnish your wages.

• You have no pathway out of default. Federal student loans have options to get out of default, including loan rehabilitation and consolidation. If you’ve defaulted on a loan multiple times, you may have exhausted these options.

» MORE: Debt relief: Understand your options and consequences

These situations are no guarantee a bankruptcy court will discharge your student loans, but it has happened for some borrowers. A study published in the American Bankruptcy Law Journal in 2012 found that, in 207 bankruptcy cases in which debtors included their loans, 39% won full or partial student loan discharges.

If you do decide to file for student loan bankruptcy, talk to a professional first. A student loan lawyer or bankruptcy attorney with student loan experience can help you determine if it’s the best option for you.

If you need additional student loan help

If you’re struggling with your student loan debt, first speak with your servicer or lender to:

• Discuss repayment options.

• Take a temporary payment pause.

• Temporarily reduce your monthly payments.

If your problem is with your lender or servicer or you’re not getting the help you need, look for a legitimate student loan help organization that offers counseling. Consider these vetted resources for student loan help; they are established organizations with verified histories:

Many of these organizations offer advice for free. In some cases, you may need to pay a fee, as with a certified nonprofit credit counseling agency or if you hire an attorney.

None of the organizations above calls, texts or emails borrowers with offers of debt resolution.

Offers of help that you have not sought out are likely to be scams. While it’s not illegal for companies to charge for services such as consolidation or enrollment in a payment plan, those are steps you can do yourself for free.

Avoid any debt relief companies that demand money upfront.