Can You File Bankruptcy on Student Loans? Yes. Here’s How.

You can discharge certain federal student loans through Chapter 7 or Chapter 13 bankruptcy. Recent policy changes have made the process much easier than before.

You’ll need to file your bankruptcy case first. Then you’ll start an adversary proceeding to discharge your student loans. Many borrowers now complete this process without hiring an attorney.

Only federal Direct Loans or Direct Consolidation Loans held by the Department of Education qualify. You must prove you can’t make payments now and show you’ve made good faith efforts to repay.

What Federal Student Loans Qualify for Bankruptcy Discharge?

Only specific federal loans can be discharged through bankruptcy right now. Federal Direct Loans and Direct Consolidation Loans held by the U.S. Department of Education are eligible.

Private student loans generally can’t be discharged through bankruptcy. Perkins Loans and FFEL/FFELP loans also don’t qualify under current guidelines.

Download your loan information from the National Student Loan Data System (NSLDS). The report shows all your federal student aid. You’ll need this document for your bankruptcy filing.

Success rates have soared under the new process. As of mid-2024, 98% of court decisions have granted full or partial student loan discharges. More borrowers are getting relief than ever before.

Do You Meet the Undue Hardship Standard?

Courts must find that repaying your loans would cause undue hardship. You need to meet three requirements for discharge.

First, you can’t afford monthly payments while maintaining a minimal standard of living. Second, your inability to pay will likely continue into the future. Third, you’ve made good faith efforts to repay your loans.

These three elements form the Brunner test. The 2022 DOJ guidelines clarify how borrowers can prove each requirement. Judges now interpret the bankruptcy code more uniformly.

Proving Your Current Inability to Pay

You must show you can’t afford payments right now. Calculate your gross income minus your allowed expenses. The attestation form details which expenses count.

If your remaining income equals $0 each month, you’ve proven inability to pay. You may still qualify for partial discharge if some income remains.

Proving Your Future Inability to Pay

The court needs evidence your financial hardship will continue. You automatically meet this requirement if you’re 65 or older.

You also qualify if you have a disability affecting your work ability. Being unemployed for five or more years in the last decade counts. Not completing the degree your loan funded also qualifies.

Loans in repayment status for 10 years or more create a presumption. You can explain other circumstances on the attestation form.

Proving Good Faith Repayment Efforts

You must demonstrate honest attempts to repay your loans. Making even one student loan payment counts as evidence.

Other qualifying actions include applying for deferment or forbearance. Enrolling in an income-driven repayment plan shows good faith. Applying for federal consolidation also counts.

Contacting your loan servicer about repayment options demonstrates effort. Working with organizations that help manage student debt qualifies too.

You must also show you’ve tried to work and maximize income. Managing your finances responsibly given your circumstances is essential.

Step-by-Step: How to Discharge Student Loans in Bankruptcy

You’ll complete your regular bankruptcy filing first. After that, you’ll take additional steps to discharge your student loans.

Step 1: File Your Bankruptcy Case

Choose between Chapter 7 or Chapter 13 bankruptcy. Your choice depends on your financial situation and goals.

Review all your debts, including credit cards and medical bills. Consider your assets like your car, home, and retirement accounts. Research whether bankruptcy is your best debt relief option.

You’ll need to pass the means test for Chapter 7. The test compares your income and expenses to prove eligibility. If you don’t pass, you might need to file Chapter 13 instead.

Want help navigating bankruptcy options? Speak with a bankruptcy attorney for free to explore whether Chapter 7 or Chapter 13 fits your situation.

Step 2: File an Adversary Complaint

An adversary complaint starts the process to discharge your loans. You’ll file this formal legal document with the court clerk.

Some districts allow electronic filing. Otherwise, submit your complaint with a cover letter form from the court.

You must include your NSLDS report with your complaint. The report lists all your student loans. Download it from the National Student Loan Data System website.

The Assistant United States Attorney (AUSA) will represent the Department of Education. The AUSA reviews your complaint and attestation form.

Step 3: Serve Your Complaint

After filing, you must serve your complaint to the defendants. These are your federal student loan lenders.

Send copies to four parties: the U.S. Attorney of your bankruptcy district, the Attorney General at DOJ, your loan servicer (Department of Education), and the U.S. Trustee.

Serving simply means mailing copies or delivering them in person. You’re notifying your lenders about the adversary proceeding.

Step 4: Complete the Attestation Form

The attestation form determines if you meet undue hardship requirements. The form has several main sections.

Income and Expense Information

You’ll report your household gross income. Include unemployment benefits and Social Security payments if applicable.

Document your basic living expenses and uninsured medical costs. Report payroll deductions, housing costs, and transportation expenses. Include necessary costs like child care.

Gather recent paystubs and bank statements before starting. Collect bills for medical expenses, insurance, and transportation. Review credit card statements for grocery, gas, and personal care expenses.

Present Ability to Pay

Calculate your gross income minus allowed expenses. The form lists which expenses count starting on page 5.

If your calculation shows $0 remaining monthly, you’ve proven inability to pay. Some remaining income might still qualify you for partial discharge.

Future Ability to Pay

Answer questions about your future financial outlook. The AUSA presumes you can’t repay if you meet certain criteria.

Meeting any presumption strengthens your case. You can explain other circumstances in the space provided.

Good Faith Efforts

Document your repayment efforts using the examples provided. Show you’ve tried to work and maximize income while minimizing expenses.

Step 5: Wait for the AUSA Recommendation

The AUSA reviews your attestation form. They assess whether you’ve met the undue hardship standard.

The AUSA makes a recommendation to the bankruptcy court. The recommendation isn’t binding, but courts consider it heavily.

AUSAs commonly request extensions lasting weeks or months. These delays are routine, and most filers agree to extension requests.

Step 6: Attend Your Hearing

The judge may schedule a hearing on your request. Many hearings happen virtually now.

Attend to answer the judge’s questions. You’ll hear the decision at the hearing. If you disagree with the decision, you can appeal.

Why Did Student Loan Bankruptcy Get Easier?

The DOJ issued new guidelines as part of broader student debt relief efforts. The nation carries $1.6 trillion in student debt.

These guidelines didn’t get as much media attention as loan forgiveness proposals. But they could be life-changing for thousands of bankruptcy filers.

The streamlined process gives more borrowers a realistic path to discharge. Courts now apply standards more consistently across the country.

Alternatives to Bankruptcy for Student Loan Relief

You don’t have to file bankruptcy to manage student debt. Federal programs and other solutions can make payments affordable.

Income-Driven Repayment Plans

IDR plans lower monthly payments based on income and family size. After 20-25 years of qualifying payments, remaining balances may be forgiven.

Forgiven amounts could be taxable. Calculate whether this option works for your situation.

Loan Forgiveness Programs

Public Service Loan Forgiveness forgives loans after 10 years of payments. You must work in qualifying public service jobs.

Other programs exist for teachers, healthcare workers, and military personnel. Research which programs match your career path.

Loan Consolidation

Combine multiple federal loans into one simplified payment. Consolidation opens up new repayment options.

You may pay more total interest over time. Weigh the convenience against the cost.

Deferment or Forbearance

Temporarily pause payments during financial hardship. Interest usually keeps accruing, especially with forbearance.

Use these options as short-term fixes only. Long-term deferment increases your total debt.

Refinancing Private Loans

Refinancing can lower your interest rate. But refinancing federal loans into private loans eliminates federal benefits.

You’ll lose income-driven plans and forgiveness options. Only refinance if the tradeoff makes sense.

Not sure which option fits your situation? Explore all your federal and private student loan options. Get personalized guidance based on your specific circumstances.