Can You File For Student Loan Bankruptcy?

You can file for bankruptcy with private and federal student loans, but in the case of federal loans, only Direct Loans or Direct Consolidation Loans are eligible. It’s usually harder to discharge federal loans through bankruptcy than private ones.

Regardless, getting either type of student loan discharged through bankruptcy is much more difficult than wiping out credit card or personal loan debt. That’s because borrowers must prove to the courts that repaying their student loans would present an “undue hardship.” Doing so requires filing an adversary proceeding, a separate lawsuit within your bankruptcy case to prove you can meet this strict standard.

Undue hardship: What is it and how to prove it

Undue hardship generally describes a situation where it would be practically impossible to repay your student loans. Historically, student loan borrowers have had to clear a high bar to prove undue hardship.

Three factors are assessed to determine undue hardship:

1. Present ability to pay: The court will evaluate your current financial situation to determine whether paying your loans would prevent you from maintaining a minimal standard of living.
2. Future ability to pay: You must also prove that your hardship will likely last for a large part of your repayment period.
3. Good faith efforts: In addition, you’ll have to show to the court that you have made good faith efforts to repay your loans before filing for bankruptcy.

Chapter 7 vs. Chapter 13 bankruptcy

According to financial attorney Leslie Tayne, founder and managing director of Tayne Law Group, once you file for bankruptcy, a court clerk will typically send a notice to all creditors, which would include loan servicers. During this time, “lenders are legally prohibited from pursuing collection efforts on the debt, known as automatic stay.”

If the judge rules you meet the undue hardship standard, your loans will be discharged. Fortunately, you won’t have to worry about paying taxes on the discharged amount because all debt discharged through bankruptcy isn’t viewed as taxable income.

If you decide to file for bankruptcy and move forward with the adversary proceeding, it’s probably best to consult a lawyer. Tayne cautions against filing for bankruptcy without one because of the “strict rules surrounding what qualifies as undue hardship,” as well as the “extensive documentation and sound legal argument” required. Any errors can delay the case or even get it dismissed.

The two most common types of bankruptcy are Chapter 7 and Chapter 13. The type of bankruptcy you should consider depends on your ability to work and receive a regular income, as well as the outcome you hope to achieve.

Chapter 7

If you file for Chapter 7 bankruptcy, otherwise known as liquidation bankruptcy, your unsecured debts, including personal loans, credit cards and student loan debt, can be discharged. A judge may require you to liquidate or sell non-exempt property, such as a second home or vehicle, to pay off some of your creditors.

Chapter 13

Chapter 13 bankruptcy, also referred to as a reorganization bankruptcy, is designed for people with enough income to repay some of their debts. Instead of wiping out your debts, Chapter 13 allows you to repay your debt in three to five years without liquidating your assets to pay off creditors.

Differences between Chapter 7 and Chapter 13 bankruptcy

How the Justice Department made the bankruptcy process easier

The Departments of Justice (DOJ) and Education (ED) streamlined the bankruptcy filing process for student loans on Nov. 17, 2022. But the new process doesn’t apply to all types of student loans.

Since the DOJ and ED implemented the streamlined process, the number of bankruptcy filings for federal student loans has increased.

• During the first 10 months of implementation, 632 new cases were filed, a major increase from the previous years, according to the DOJ. Ninety-seven percent of borrowers also voluntarily used the new filing process.
• From October 2023 to March 2023, 1,220 new cases were filed, which was also a substantial rise in filings from prior years.
• From November 2022 to March 2023, the DOJ reported 98% of cases that were decided by the courts resulted in a full or partial discharge.

Although most cases decided by a judge led to a borrower having some of their debt discharged, the DOJ doesn’t reveal the number of federal student loan borrowers that ended up with this favorable result. Based on a December 2024 Harvard research paper, less than one percent of student loan borrowers tried to discharge their debt via bankruptcy.

If you’re wondering whether the One Big Beautiful Bill (OBBB) has any affect on student loan discharges, it will not. “The OBBB mainly overhauls the federal student repayment system, but it doesn’t make any changes to bankruptcy discharge standards or procedures,” says Tayne.

How to file for student loan bankruptcy in 4 steps

Step 1: Find a lawyer and seek a free consultation

Search for a bankruptcy lawyer in your area that can help guide you through the process of filing for bankruptcy with student loan debt. The majority of bankruptcy attorneys offer a free consultation. If you’re not sure where to find a lawyer that offers a free consultation, consider visiting Upsolve, a nonprofit organization that provides a search tool on its website.

Step 2: Decide whether to file for Chapter 7 or 13 bankruptcy

You’ll need to choose between Chapter 7 or Chapter 13 bankruptcy, which have different rules regarding which assets you keep and what you’re required to pay for your student loans. Your attorney can help you consider your bankruptcy options and determine which is the best fit for your financial situation.

Step 3: File a bankruptcy petition

Filling out a bankruptcy petition includes filling out various forms, which require you to provide personal and financial information, including your name and any previous aliases, the amount of debt you owe and your address. According to Tayne, filing the bankruptcy petition triggers the automatic stay.

Step 4: File an adversary proceeding and wait for a decision

Afterward, you must file an adversary proceeding with a bankruptcy court to prove undue hardship. During this timeframe, your student loan servicers and creditors can contest your request to have your debt discharged. If the court thinks you meet the undue hardship standard, it may grant your petition to discharge all of your student loans. It may also opt to grant a partial discharge or no discharge at all.

Should I file for student loan bankruptcy?

Bankruptcy is a complex legal process with long-lasting implications – as such, it should not be taken lightly. Before you file for bankruptcy, consider the following.

• Impact on your credit: Bankruptcy can cause major damage to your credit score for years. Chapter 13 bankruptcy stays on your credit report for seven years, and Chapter 7 bankruptcy stays on your credit report for 10 years.
• Time: Bankruptcy cases are lengthy. It’s common for a Chapter 7 case to last up to six months before you potentially receive a discharge. In comparison, Chapter 13 can last up to five years because of the repayment plan.
• Cost: It costs hundreds of dollars just to file for bankruptcy. Plus, an attorney could set you back up to $2,000 or more.

Once you file for bankruptcy, your case may end in one of four ways:

1. All of your student loans and other debts are discharged.
2. Your loans are partially discharged.
3. You must repay your loan under better terms, such as with a lower interest rate or monthly payment.
4. Your loans and their terms do not change at all.

Possible alternatives to student loan bankruptcy

Filing for bankruptcy can definitely bring some much-needed relief if you’re struggling financially, but you should try looking into repayment options first to avoid the negative consequences of bankruptcy. It’s also critical that you’re aware of the upcoming federal student loan program changes.

To avoid the consequences of bankruptcy, consider these six alternatives:

1. Contact your lender: As soon as you know you’ll be unable to make your student loan payment as agreed, contact your loan servicer to discuss hardship options. If you wait until your loans are in default, you’re likely to have fewer options.
2. Apply for an income-driven repayment plan: If you have federal student loans, you might be eligible for an income-driven repayment (IDR) plan. However, note that while several IDR plans are available now, many won’t be available come July 1, 2026. The only IDR plan that will be available after that date is the Repayment Assistance Plan (RAP).
3. Look for federal loan forgiveness programs: Public Service Loan Forgiveness is available for individuals who work in qualifying public service positions and make payments on an income-driven repayment plan for 10 years. There are also other types of loan forgiveness plans you can explore. Note that PSLF will not be an available option for parent PLUS loans starting July 1, 2026.
4. Ask for temporary deferment or forbearance: If you need temporary relief from private or federal student loans, look into deferment and forbearance, which let you temporarily pause monthly payments. Although you can qualify for deferment as of this writing due to unemployment and economic hardship, it’ll no longer be an option for new student loans on July 1, 2026.
5. Refinance your student loans: Another option is to refinance your student loans with a private lender that might offer a lower interest rate or monthly payment that you can afford. This option won’t work for everyone, and if you refinance federal student loans, you’ll lose access to administrative forbearance options, forgiveness programs and income-driven repayment plans, as you’d be turning your federal loan into a private one.
6. Contact consumer advocacy organizations: If you’re worried about defaulting on your student loans, national organizations can help you apply for repayment options, investigate debt payoff plans or explore loan rehabilitation.

Bottom line

Getting student loans discharged through bankruptcy can be complicated. However, new rules and guidance could make the process easier for distressed borrowers.

That said, filing for bankruptcy can cost thousands of dollars and have long-term consequences, so it should never be taken lightly. It’s important to exhaust all other options to make your payments more manageable before going down this route.