Can You File Bankruptcy on Student Loans?

There’s a long-standing myth that you can’t get rid of student loans through bankruptcy. This myth persists, in part, because the majority of student loan borrowers who are potentially eligible to have their debt discharged in their bankruptcy case don’t even try.^[1] Why not?

The bankruptcy process itself requires a lot of forms, documentation gathering, and patience. And to get rid of your student loan debt, you have to take an extra step: file for an adversary proceeding. In the past, this process was so complicated — and scary for many folks since it involved a separate hearing — that to do it successfully, most filers opted to hire a lawyer. 

In November 2022, the Department of Justice and Department of Education released new guidelines to make the adversary proceeding process simpler and less intimidating. The guidelines also provide clarity to courts about how filers can prove “undue hardship.” While we’re still seeing what the effects of the new guidelines will be, there’s some early evidence that this is making it easier to get a bankruptcy discharge for federal student loan debt.

Let’s take a closer look.

Can Filing Bankruptcy Help You Get Rid of Student Loan Debt?

If you meet the eligibility requirements, bankruptcy may be a viable path to wiping out some or all of your student loan debt. First, make sure you’re eligible to file a personal bankruptcy case. This could be either Chapter 7 or Chapter 13, depending on your financial situation and goals. Then, make sure your loans qualify. Finally, see if you meet the undue hardship standard for discharging student loans through bankruptcy.

First Ask: Do You Qualify To File Bankruptcy?

If you’re thinking about filing bankruptcy to get a fresh start, start by considering your whole financial situation: what types of debt you have, how much debt you have, and what your current income and expenses are. You’ll also want to consider whether you own any assets — like a car, home, or retirement accounts — and if bankruptcy is the best form of debt relief for you. 

You’ll need to know your income and expenses for the means test. This is a test that all Chapter 7 bankruptcy filers must pass to prove they are eligible to file. If you don’t pass the means test, you may still be able to file bankruptcy, but you might need to look into Chapter 13. You can use our nonprofit’s free screener to see if you’re eligible to use our app to file your Chapter 7 bankruptcy paperwork.

Next Ask: Do Your Loans Qualify?

You’ll also want to look at what type of loans you have. Currently, only Federal Direct Loans and/or Direct Consolidated Loans held by the U.S. Department of Education are eligible for a bankruptcy discharge under the new guidance. If you aren’t sure what type of loan you have, you can get that information from the National Student Loan Data System (NSLDS). The NSLDS stores information on any federal student aid you’ve received. 

Perkins Loans, FFEL/FFELP loans, and private student loans aren’t covered under the new guidance. In some cases, you can file bankruptcy on these and private student loans, but the process will look different. To learn more, read our article Can I Discharge a Private Student Loan in Bankruptcy?

Then Ask: Can You Demonstrate Undue Hardship?

Assuming you qualify for bankruptcy, you’ll then need to prove that you meet the undue hardship standard.

Undue hardship is demonstrated when the bankruptcy filer:

• Can demonstrate they don’t currently have the financial ability to make the monthly payments on their federal loans while maintaining a minimal standard of living

• Can demonstrate that this inability to pay their loans is likely to continue in the future

• Has shown a good faith effort in their attempts to repay their loans

These three elements make up what’s often called the Brunner test. Bankruptcy law doesn’t clearly define how filers can demonstrate their inability to pay or that they’ve made a good faith effort to do so. The new DOJ guidelines help bankruptcy judges interpret the Bankruptcy Code more uniformly by further defining these elements of the Brunner test. You can read more about each of these below in our section on the attestation form. 

If repaying your student loans is causing serious hardship and you’re thinking of filing bankruptcy to address your loans and other debt, you can use our free screener to see if you’re eligible to prepare your paperwork for free. It only takes five minutes to see if you qualify.

How To File Student Loan Bankruptcy

Let’s lay out the steps to getting your student loans discharged in bankruptcy. To keep things concise, we’ll assume you’re already familiar with how to file a bankruptcy case. If not, read our popular article How to File Bankruptcy for Free first.

Assuming you’ve filed your bankruptcy case, here are the basic steps to get a student loan discharge.

Step 1: File an Adversary Complaint

An adversary complaint initiates the adversary proceeding. This is a lot like a civil lawsuit. You initiate the adversary proceeding by filing a complaint with the court clerk. A complaint is a formal legal document.

Depending on which district you’re in, you may be able to file this electronically. If you don’t file it electronically, you’ll need to submit it with a cover letter, which the court provides as a PDF form. If you qualify to file your case with Upsolve, our nonprofit can help you formulate your complaint paperwork.

Important! Include Your NSLDS Report With Your Adversary Complaint!

You must include a complete list of your student loans along with your adversary complaint. To get this list, you can download a report from the National Student Loan Data System (NSLDS). Here’s an article detailing exactly how to do that: How To Use the National Student Loan Data System (NSLDS).

The Assistant United States Attorney (AUSA) will represent the U.S. Department of Education in the proceeding. The AUSA will review the adversary complaint and your attestation form.

Step 2: Serve the Complaint on Your Student Loan Servicer or Lender

After you file the complaint with the court, you must “serve” the complaint to the defendants you named — your federal student loan lender(s) — and send a copy to certain parties in the bankruptcy case.

Serving the complaint simply means sending a copy by mail or delivering it in person. The point is to let the defendant — your lender — know about the adversary proceeding. You’ll also need to make sure to serve the AUSA with a summons and complaint.

Generally speaking, student loan bankruptcy filers will send the complaint and summons to the following four parties:

• The U.S. Attorney of the Bankruptcy Filing District

• The Attorney General of the United States, Department of Justice

• The Student Loan Servicer (i.e.g, the Department of Education)

• The U.S. Trustee of the Bankruptcy Filing District. 

Follow Up With the U.S. Attorney of the Bankruptcy Filing District

The U.S. Attorney's office for your bankruptcy district should contact you (usually by email) after receiving your adversary complaint and summons. If you haven't heard from them within two weeks of sending your paperwork, it's recommended that you follow up with their office.

The U.S. Department of Justice has an online search tool that can help you find the contact information you need.

Call the office and tell them you want to confirm that they received the documents for your bankruptcy adversary proceeding. After receiving confirmation, stay in touch with the office about next steps. The Department of Education should send a litigation report to the U.S. Attorney's office. Ask them to provide you with a copy of this report.

Some offices move faster than others. Don't be afraid to follow up regularly to inquire about the progress of your case.

Step 3: Complete the Attestation Form

Next, you’ll fill out an attestation form to send to the U.S. Attorney of your local bankruptcy filing district. This is the form that will be used to determine if you meet the undue hardship requirements. The form begins by asking basic questions to gather your personal information and information about your student loans. The rest of the form is devoted to understanding whether you meet the undue hardship standard by asking about your income and expenses.

The Attestation Form: Income and Expense Information

Income information: This includes your household gross income, unemployment benefit payments, and Social Security payments.

Expense information: This includes your basic living expenses, uninsured medical costs, payroll deductions, housing costs, transportation costs, and other necessary expenses such as child care

What you’ll need to answer these questions: It’s helpful to gather recent paystubs, bank statements, and unemployment or Social Security paperwork (if applicable) to help you fill out the income portion of this form. For the expenses, gather recent bills including medical bills, insurance payments, your paystub (to see deductions), recent transportation bills and receipts (including for maintenance and gas). 

If you use a credit card or debit card to pay your expenses, you can look at your recent transaction history to capture some of the expenses you pay that you may not keep receipts for like groceries, housekeeping supplies, apparel, personal care products, gas for your car or public transportation costs. Be sure to include expense information for your dependents as well.

The Attestation Form: Information on Your Present Ability To Pay Your Student Loan Debt

There’s a pretty simple formula to determine your ability (or inability) to make your monthly student loan debt payment: Your gross income minus your allowed expenses. You’ll tally your gross income and allowed expenses on your attestation form. If you run these numbers through the formula and it shows there is $0 remaining each month, this shows an inability to pay your student loan debt. 

If you have some income remaining, the AUSA will look at your loan payment to determine if you qualify for a partial discharge.

The Attestation Form: Information on Your Future Inability To Pay Your Student Loan Debt

The attestation form will ask you a series of questions to get a sense of whether you’ll be able to repay your student loan debt in the future. The AUSA can presume you will not be able to repay your loans in the future if you meet any of the following criteria:

• Are 65 or older

• Have a disability or chronic injury that impacts your ability to work

• Have been unemployed for five or more years in the last decade

• Didn’t get a degree that the loan was meant to finance

The AUSA can also presume an inability to pay if your loan has been in repayment status for 10 years or more. These presumptions provide a more straightforward case to the AUSA, but they aren’t the only way to show an inability to pay. If your reason falls outside these presumptions, you can explain it in the space provided on the attestation form.

The Attestation Form: Information Showing a Good Faith Attempt at Repayment

The next portion of the attestation form helps the bankruptcy court determine whether you’ve made a “good faith effort” at student loan repayment.

The DOJ cites several examples of evidence of good faith. To demonstrate good faith, the borrower could have done one or more of the following:

• Made at least one student loan payment

• Applied for or been approved for deferment or forbearance

• Applied for or enrolled in an Income-Driven Repayment Plan

• Applied for or received a federal consolidation loan

• Contacted the loan servicer/lender or responded to a contact from the loan servicer or a collector regarding their repayment options

• Contacted a third-party organization whose goal was to help the borrower manage their student loan debt

To demonstrate good faith, filers must also show they’ve made an effort to work or find work and to maximize their income while minimizing their expenses. Essentially, filers must show they have managed their debts and finances responsibly given their circumstances.

Step 4: The AUSA Makes Its Recommendation to the Bankruptcy Court

The AUSA will review the bankruptcy filer’s attestation form to assess whether they believe the undue hardship standard has been met. Then, the ASUA makes a recommendation to the Bankruptcy Court handling the case. The DOJ guidance notes that this recommendation “is not binding on the bankruptcy court.” Though the court will use this information to determine whether or not to discharge all or a portion of the filer’s student loan debt.

Step 5: The Bankruptcy Court Issues a Decision

The judge in your case may decide to hold a hearing on your request. (Many are being held virtually.) 

If so, it’s a good idea to attend the hearing, so you can answer any questions the judge may have and so you can then hear the judge’s decision.

If you don’t agree with the judge’s decision, you can appeal the decision.

Why Did the DOJ Issue New Guidance for Bankruptcy and Student Loans?

The DOJ’s guidelines are part of a broader set of efforts to address the $1.6 trillion in federal student debt^[2] in this country. Though the new DOJ guidelines could have a significant impact on student loan borrowers, they didn’t garner as much media attention.

But for the many thousands of student loan borrowers who do opt to file bankruptcy, clarifying and simplifying the student loan discharge process could be life-changing.