How To Discharge Student Loans in Bankruptcy: Complete Guide

Want to discharge your federal student loans through bankruptcy? You’ll need to file an adversary proceeding. An adversary proceeding is a separate legal process within your bankruptcy case. It resolves specific disputes that arise during bankruptcy.

Due to changes in late 2022, federal student loan discharge proceedings became simpler. You may be able to handle the process yourself without hiring an attorney. Here’s how adversary proceedings work for student loan discharge.

What Is an Adversary Proceeding?

An adversary proceeding is a legal process within a bankruptcy case. These proceedings serve many different functions in bankruptcy court.

📚 This article focuses on student loan bankruptcy discharges.

Adversary proceedings also handle other bankruptcy matters. If a creditor objects to discharging a specific debt, they file an adversary proceeding. In these situations, you should consider hiring an attorney or seeking legal aid.

Adversary Proceedings for Student Loans Explained

An adversary proceeding is a separate lawsuit within your bankruptcy case. You use it to ask the court to erase your federal student loan debt. Student loans aren’t automatically discharged like credit cards or medical bills.

To get a student loan discharge, you must prove two things:

• Repaying your loans causes you undue hardship
• You’ve made a good faith effort to repay them

💡 The adversary proceeding formally makes this request to the court.

Most student loan cases start with an attestation form. The form asks about your income, expenses, and loan history. The court uses this information to decide if you qualify.

You file the adversary proceeding after filing your bankruptcy case. It’s a separate process focused solely on your student loans. If you want student loans included in your bankruptcy discharge, you need this extra step.

Federal Student Loans vs. Private Student Loans

The process differs for federal and private student loans. The U.S. Department of Justice guidance applies to federal student loan borrowers. Federal Direct Loans and Direct Consolidation Loans specifically qualify.

You can still try to discharge other federal loans (Perkins, FFEL) or private student loans. Success rates are lower and the process is more difficult for these loans.

If your student loan debt doesn’t qualify for bankruptcy discharge, explore other options. Speak with a bankruptcy attorney for free to understand your choices.

Other Types of Adversary Proceedings

Many Chapter 7 bankruptcies proceed smoothly without adversary proceedings. But here are common reasons they’re filed:

• A creditor objects to discharging a specific debt
• There’s a general objection to granting you a discharge
• The trustee wants to recapture property from a third party
• A secured creditor needs to prove they have a valid lien

This list isn’t exhaustive. If the Bankruptcy Court opens an adversary proceeding, you’re in difficult legal territory. Consider seeking professional help immediately.

Federal Student Loan Adversary Proceeding Process

This section covers adversary proceedings for federal Direct and Direct Consolidation loans. Other federal loans or private loans follow the process described in the next section.

Step 1: File Your Adversary Complaint

An adversary proceeding starts with an adversary complaint. A complaint is a legal document laying out your case. It names all parties involved in the proceeding.

📄 You’ll need to submit a list of all your student loans. Download this information from the National Student Loan Data System (NSLDS). Access your federal student loan information through their portal.

Step 2: Serve the Complaint

Next, serve the complaint to the defendants you named. These are your federal student loan lenders and other interested parties.

📬 Serving the complaint means officially delivering a copy via mail or in person. You notify the people or organizations you’re suing. The court requires proper service so defendants can respond.

Student loan bankruptcy filers typically send complaints to:

• The U.S. attorney overseeing your bankruptcy filing district
• The attorney general of the U.S. Department of Justice
• The student loan servicer (Department of Education)
• The U.S. trustee of your bankruptcy’s filing district

You must also serve the Assistant United States Attorney (AUSA) with a summons and complaint.

Step 3: Complete the Attestation Form

You must meet the undue hardship standard for student loan discharge. The AUSA and bankruptcy judge determine if you qualify. They review information on the 15-page attestation form.

Have a copy of your bankruptcy forms handy. It makes filling out the attestation form easier.

3️⃣ The attestation assesses your financial circumstances. You must meet three main eligibility criteria:

• You’re currently unable to make student loan payments while maintaining a minimal standard of living for you and your dependents
• This inability will continue in the future for the loan’s repayment period or longer due to disability, chronic unemployment, or other serious adversity
• You’ve shown good faith attempts to make monthly payments through income-driven repayment plans, deferment, forbearance, forgiveness programs, or consolidation

Step 4: AUSA Reviews and Makes a Recommendation

The Assistant United States Attorney reviews your attestation form. They also examine any evidence you include and your NSLDS report. The AUSA then makes a recommendation to the bankruptcy judge.

The recommendation isn’t binding. The bankruptcy judge handling your case makes the final decision. The judge may request that you attend a hearing to answer questions. Hearings are likely held virtually. Attend so you can respond to the judge’s questions.

Extensions and Continuances

The AUSA commonly asks the court for more time. They may request a continuance of 30, 60, or up to 90 days.

Step 5: The Bankruptcy Judge Decides

The bankruptcy judge has the final say on discharging your federal student loans. The judge may allow a complete discharge of qualifying student loan debt. They could issue a partial discharge. Or the judge could deny the discharge entirely.

Non-Student Loan Adversary Proceedings

Adversary proceedings for other matters run like mini-trials. The person filing the proceeding asks the court to decide something. They make their case first. Then the other party responds with their own arguments.

Parties may present evidence through documents or witnesses. Some cases resolve before reaching that point. Each adversary proceeding looks different, but here’s the general overview:

Step 1: File Your Complaint

Go to court to open an adversary proceeding and file a complaint.

Step 2: Clerk Issues Summons

The clerk issues a summons on filing day or within a few days. You have 30 days to serve the summons and complaint.

Step 3: Defendant Responds

The defendant has 30-35 days to respond. They file either an answer or a motion to dismiss.

• No response? File a motion for default asking for judgment against the defendant.
• Motion to dismiss? You’ll respond to the motion and present your case at a hearing. If the court rules in your favor, the defendant files an answer.
• Answer filed? The case moves to the discovery period.

Step 4: Discovery Period

You exchange information with the defendant as both sides prepare for trial. You have more time to reach a settlement during discovery.

Step 5: Pretrial Proceedings

If no settlement is reached, the matter is set for trial.

Step 6: Trial

Both sides present evidence and question witnesses at trial. The judge reviews everything and issues a decision. The court’s decision resolves the issue raised in the complaint.

Step 7: Appeal (If Applicable)

The losing party may appeal to the District Court or Bankruptcy Appellate Panel. Not every case is eligible for appeal. Strict deadlines apply. Consider speaking with an attorney who handles bankruptcy appeals if you’re considering this option.