Short Answer
Yes, you can file bankruptcy with student loans, but student loans are not usually automatically discharged when you file bankruptcy. To have eligible student loan debt discharged, you generally need to file a separate adversary proceeding in the bankruptcy case and show that repaying the debt would cause an undue hardship. The bankruptcy court makes the final decision, and the rules can vary depending on the type of loan and your circumstances.
Can You File Bankruptcy on Student Loans?
Yes, you can file bankruptcy even if you have student loan debt. However, filing bankruptcy does not automatically erase your student loans.
Under U.S. bankruptcy law, certain student loan debts are generally treated differently from many other types of unsecured debt. A borrower seeking to discharge qualifying student loan debt generally has to establish that continuing to repay the debt would impose an “undue hardship” on the borrower and, where applicable, their dependents.
This means the answer is not simply “yes” or “no.” It depends on the type of student loan, the borrower’s financial circumstances, and whether the legal requirements for discharge are satisfied.
Does Bankruptcy Automatically Erase Student Loans?
No.
When someone receives a bankruptcy discharge, that does not automatically mean their student loans have been discharged.
For student loan debt covered by 11 U.S.C. § 523(a)(8), the borrower generally needs to address the student loans through an adversary proceeding and establish the required undue hardship. A bankruptcy court then makes its own determination about whether the debt can be discharged.
So, simply filing Chapter 7 or Chapter 13 does not by itself guarantee that student loan debt will disappear.
What Is an Adversary Proceeding?
An adversary proceeding is a separate legal proceeding within the bankruptcy case.
If a borrower wants the bankruptcy court to determine whether student loans are dischargeable, the borrower generally files a complaint asking the court to make that determination.
The U.S. Bankruptcy Courts explain that a student loan discharge request under Section 523(a)(8) is handled through an adversary proceeding.
This is important because some borrowers may mistakenly believe that listing student loans on their bankruptcy paperwork is enough. It generally is not enough when the borrower is seeking a determination that the student loans themselves should be discharged.
What Does “Undue Hardship” Mean?
“Undue hardship” is the key legal concept involved in many student-loan bankruptcy discharge cases.
The law does not simply ask whether the borrower finds the payments difficult or whether the loan balance is large.
Instead, the court looks at the borrower’s particular circumstances and whether requiring repayment would create the type of hardship recognized under applicable bankruptcy law.
The exact legal test can vary by federal circuit. Courts have used different approaches, including the Brunner framework and a totality-of-the-circumstances approach.
This is one reason it is risky to assume that having a low income or significant student loan debt automatically qualifies someone for a discharge.
What Factors Can the Court Consider?
The factors depend on the jurisdiction and circumstances of the case.
Under the commonly used Brunner framework, courts have considered issues such as whether the borrower can maintain a minimal standard of living while making the payments, whether the financial circumstances are likely to continue, and whether the borrower has made good-faith efforts to repay the loans.
For Department of Education-held loans, current DOJ guidance also focuses on the borrower’s present ability to repay, the likelihood that the inability to repay will continue, and past good-faith efforts.
However, these factors should not be treated as a universal checklist for every bankruptcy case because the applicable legal standard can depend on the jurisdiction and type of debt.
Can Federal Student Loans Be Discharged in Bankruptcy?
Potentially, yes.
Federal student loans are not automatically protected from discharge in every circumstance. A borrower may ask the bankruptcy court to determine whether repayment would create an undue hardship.
The Department of Education’s student-loan information confirms that, in some circumstances, a federal student loan can be discharged after bankruptcy when the borrower files an adversary proceeding and establishes undue hardship.
The important point is that eligibility and discharge are determined based on the applicable law and the facts of the individual case.
What About Private Student Loans?
Private student loans can also involve complicated bankruptcy rules.
You should not assume that all private education debt is treated exactly the same as federal student loans. Whether a particular private education debt falls within the bankruptcy protections of Section 523(a)(8) can depend on the nature of the debt and the applicable law.
Because of these differences, someone considering bankruptcy should identify exactly what type of student debt they have before assuming that bankruptcy will or will not eliminate it.
Can Chapter 7 Bankruptcy Discharge Student Loans?
Chapter 7 bankruptcy can provide a discharge of certain debts, but qualifying student loan debt generally requires the borrower to separately establish that the statutory requirements for discharge are satisfied.
In other words, filing Chapter 7 does not automatically eliminate student loans.
A borrower seeking a student loan discharge generally needs to pursue the appropriate adversary proceeding and provide evidence supporting the claim of undue hardship.
Can Chapter 13 Bankruptcy Discharge Student Loans?
Chapter 13 is also not an automatic way to eliminate student loans.
A Chapter 13 case involves a repayment plan, and student loan treatment can depend on the circumstances of the case and the applicable law.
If the borrower is specifically seeking a determination that student loan debt should be discharged because repayment would cause undue hardship, the borrower generally needs to address dischargeability through the appropriate bankruptcy procedure.
Does Filing Bankruptcy Stop Student Loan Payments?
Bankruptcy can affect collection activity, but borrowers should not assume that filing bankruptcy means they no longer have to deal with their student loan obligations.
The automatic stay and other bankruptcy protections can affect collection actions, but the exact treatment of student loans during and after bankruptcy depends on the case.
A borrower should obtain case-specific legal advice before stopping payments or assuming that a particular collection action has been permanently eliminated.
Can Student Loans Be Partially Discharged?
In some cases, yes.
A bankruptcy court may determine that some portion of a student loan debt can be discharged while another portion remains.
For example, the U.S. Bankruptcy Court for the District of Maryland reported a case in which the court determined that the debtor had established undue hardship but also had some ability to repay part of the student loan debt, resulting in a partial discharge.
This demonstrates why the outcome can depend heavily on the evidence and individual circumstances.
What Evidence May Be Important?
A borrower seeking a student loan discharge may need detailed financial information.
Depending on the case, relevant information can include income, living expenses, assets, debts, employment circumstances, repayment history, and information about the future outlook for the borrower’s financial situation.
For Department of Education-held loans, DOJ guidance describes an attestation process that asks for information about current income and expenses, future ability to repay, previous repayment efforts, assets, and other circumstances relevant to undue hardship.
Accurate documentation is therefore very important.
What If You Cannot Afford Your Student Loan Payments?
Bankruptcy is not necessarily the only option.
Depending on the type of student loan and the borrower’s situation, other possibilities may include income-driven repayment options, deferment, forbearance, loan rehabilitation, consolidation, or other available relief programs.
The appropriate option depends on the loan type and current eligibility requirements.
Someone who is struggling financially should compare these alternatives before deciding whether bankruptcy is appropriate.
Should You File Bankruptcy Just Because of Student Loans?
That decision requires looking at the borrower’s entire financial situation.
Bankruptcy can affect many parts of a person’s finances, including other debts, assets, credit history, and future financial decisions.
Student loan discharge is also not guaranteed simply because someone is experiencing financial difficulty.
For that reason, anyone seriously considering bankruptcy because of student loan debt should consider speaking with a qualified bankruptcy attorney who can review the specific loans, financial circumstances, and laws applicable to the person’s state and federal court district.
Final Answer
Yes, you can file bankruptcy if you have student loans, but bankruptcy does not normally make student loans disappear automatically. If you want eligible student loan debt discharged, you generally need to pursue an adversary proceeding and demonstrate that repaying the debt would impose an undue hardship under the applicable bankruptcy law. The bankruptcy court makes the final decision.
The best approach is to first identify whether your loans are federal or private, understand your current financial situation, review the available repayment or relief options, and then speak with a qualified bankruptcy attorney if you are considering filing. Bankruptcy law is highly fact-specific, so an outcome in one person’s case does not necessarily mean another borrower will receive the same result.
This article provides general educational information about U.S. bankruptcy law and student loans. It is not a substitute for advice from a qualified attorney who can review your individual circumstances.