How to File for Student Loan Bankruptcy

The burden of student loans can be overwhelming, leaving many borrowers in financial distress. For some people, declaring bankruptcy may be the only way to escape this financial trap.

How to File for Student Loan Bankruptcy
How to File for Student Loan Bankruptcy

However, paying off student debts through bankruptcy is a difficult procedure that necessitates a detailed understanding of the laws governing it. In this article, we will explore the steps involved in filing for student loan bankruptcy.

How Does Loan Bankruptcy Work?

In certain situations, it is possible to have student loans forgiven; however, the procedure is more intricate compared to dealing with other forms of debt. It’s important to note that initiating the process of student loan bankruptcy does not assure the discharge of your student loan. To start this process, you’ll first need to file either Chapter 7 or Chapter 13 bankruptcy. Subsequently, you will be required to take an extra step by filing what is known as an “adversary proceeding.”

Allowing your payments to fall behind can have a significant adverse impact on your financial well-being, including a reduction in your credit score. If you’re contemplating the prospect of missing payments and pursuing student loan bankruptcy, it’s crucial to carefully assess both the advantages and disadvantages involved.

Filing for Student Loan Bankruptcy

Before proceeding with bankruptcy, it’s essential to carefully contemplate and take into account the following factors:

  • Potential for Increased Debt: The bankruptcy court determines your monthly payments to creditors. If other debts take precedence over student loans, you could accumulate additional interest on your student loans.
  • Solely Student Loan Debt: If your sole debt is your student loan, it’s less likely that your case for discharging it will succeed.
  • Loan Type Matters: Private student loans may have a higher chance of discharge or settlement in bankruptcy compared to federal student loans. Federal loans offer income-driven repayment plans, unlike private loans.
  • Filing Costs: You will need to cover court filing fees unless they are waived by the court.

Types of Bankruptcy

There is a lot of paperwork to fill out and information to disclose when filing for either Chapter 7 or Chapter 13 bankruptcy, including your assets, income, debts, and expenses. An unbiased trustee will be appointed by the bankruptcy court to meet with your creditors and verify your debts. Additionally, you must attend credit counseling.

Chapter 7: Bankruptcy

Your nonexempt assets will be liquidated by the trustee in a Chapter 7 bankruptcy, also known as a liquidation. Depending on the state, exempt assets can include your home, car, and other expensive belongings. The trustee pays your creditors as much of your debt as possible with the proceeds, and the court releases the remaining balance.

You cannot file for Chapter 7 bankruptcy if you have already had a Chapter 7 bankruptcy discharged within the previous eight years. Additionally, you must meet a means test requirement or have a monthly income below the state median. Taxes, alimony, and child support are debts that cannot be discharged. You can submit a request for student debt discharge once your case is finished.

Chapter 13: Bankruptcy

When they fail the Chapter 7 means test, many people file for Chapter 13 bankruptcy, often known as reorganization. If they don’t want to lose their house to foreclosure, they can also file. Creating a repayment plan under Chapter 13 includes using three to five years’ worth of a debtor’s available income to pay back creditors. The trustee oversees payments, taking a monthly payment from the debtor and allocating it to the creditors in accordance with the repayment plan. Your new monthly debt payments, including your new student loan payment, will be set by the bankruptcy court.

How to Prove Undue Hardship for a Student Loan

You must demonstrate that your student loans will cause you “undue hardship” during your adversary proceeding in order to dismiss them through bankruptcy. Undue hardship is not defined in the U.S. Bankruptcy Code, so bankruptcy courts have varied views on what it entails. The Brunner test is typically used to establish whether student loans are an unreasonable hardship for bankruptcy filers. To get your student debt forgiven, you must demonstrate that you meet each of the three criteria in the Brunner test:

Maintaining a Minimal Standard of Living

Ensuring that meeting your student loan payments would prevent you from sustaining a basic standard of living considering your current income and expenses. This typically involves having extremely frugal expenses and exhausting all viable methods to boost your income without achieving success.

Prolonged financial hardship Likelihood

Demonstrating that additional circumstances highly suggest your financial difficulties will endure for a substantial portion of your remaining loan repayment period. Examples include severe mental or physical disabilities, substandard education quality, or reaching the income cap within your profession.

Good Faith Repayment Efforts

Establishing that you’ve made sincere “good faith” endeavours to repay your loans these efforts can encompass making partial loan payments, exploring payment plan negotiations, and actively reducing unnecessary expenditures while seeking income augmentation.

How to File for Student Loan Bankruptcy

Let’s explore some steps on how to file for student loan bankruptcy:

Consult with a bankruptcy attorney

Navigating a very complicated legal process is required when declaring bankruptcy, especially when it comes to student loans. Therefore, it is highly advised that you seek the advice of a qualified bankruptcy lawyer who can thoroughly assess your particular situation and effectively lead you through every stage of the procedure.

Gather detailed financial records

You’ll need to gather careful financial records, including income, expenses, and an extensive list of outstanding bills, to support your claim. This supporting material is essential in proving your bankruptcy claim for student loans.

Fill out the Means Test

The means test is crucial in determining whether you qualify for bankruptcy relief. It carefully examines if your income is less than the median income in your state for the size of your household. If you don’t pass this test, you could only be able to file for Chapter 13 bankruptcy, which would require you to create a structured repayment plan rather than a total discharge of your obligations.

Submit a petition for bankruptcy

You must carefully complete the necessary documentation to start the bankruptcy procedure, including submitting a bankruptcy petition with the appropriate court with the aid of your attorney.

Show up to the bankruptcy hearing

You’ll typically be required to attend a bankruptcy hearing, giving you the chance to argue your case and show supporting documentation to the bankruptcy judge who will be presiding.

Follow the court’s ruling

Your student loans could either be discharged or a part of the bankruptcy plan the court creates, depending on whether the court decides you meet the “undue hardship” criteria. This strategy can include paying off your obligations in full or in part over a predetermined time frame. To successfully manage the aftermath of your bankruptcy procedures, you must follow the court’s ruling.

Alternatives to Student Loan Bankruptcy

While bankruptcy may be a possibility for some people, it is important to consider other options before taking this step.

Income-Driven Repayment Plans (IDR)

Federal student loans offer valuable safeguards, with one of the most advantageous being the income-driven repayment (IDR) program. This plan caps your monthly payments at a portion of your income and grants forgiveness for any remaining balance after 20 or 25 years. It’s important to note that most private lenders do not provide this repayment option.

Loan forgiveness programs

Certain professions, like those in public service or education, present opportunities for loan forgiveness programs. These initiatives extend debt relief by forgiving a portion of your student loans after a designated number of years of dedicated service, thereby providing financial relief to individuals committed to these fields and promoting public welfare.

Federal Loan Rehabilitation

In the event that your federal student loans have reached a state of default. Typically defined as being overdue by at least 270 days. You have the opportunity to follow a structured process to rectify this situation. The rehabilitation process entails making nine consecutive monthly payments. Each amounting to 15% of your income and upon successful completion. The default status will be removed from your credit report. Subsequently, you can also explore the option of applying for an income-driven repayment (IDR) plan. To make your remaining payments more feasible.

Loan Consolidation

Federal loan consolidation is a strategic financial move that enables you to merge multiple federal loans into a single, more manageable debt structure. Beyond simplifying your monthly payments, it can also open the door to potential interest rate reductions, ultimately easing your financial burden and providing greater flexibility in managing your student loan debt.


Filing for student loan bankruptcy is a challenging and often unsuccessful process due to the stringent requirements. This needs to be viewed as a final option. Before choosing this course of action, speak with a bankruptcy lawyer and consider other ways to handle your student loan debt. Even though bankruptcy may offer relief in a small number of situations. It is crucial to fully understand the procedure and any potential implications before making such a big decision.

Frequently Asked Questions

Can bankruptcy help you get rid of student loans?

Bankruptcy may, but is not always, be a route to discharge student loans. The procedure is challenging. Consider talking to a financial expert to go over your options before deciding to file for bankruptcy to discharge your school debt.

What is the impact of student loan discharge on credit?

When student loan accounts are discharged through bankruptcy, they remain on your credit report. Even though you are no longer liable for repayment. This discharged student loan will persist on your credit report for a period of up to 10 years. Contributing to a sustained negative effect on your credit score during this duration.

What amount of student loan debt is excessive?

There is no specific threshold for what is “too much” student loan debt. Every borrower has a unique scenario, and whether or not the debt is sustainable relies on a variety of factors. Including your debt-to-income ratio, living expenses, job security, and more. Contact your loan servicer. Or lender to find out about your repayment choices if you are struggling to make your student loan payments.



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