Student loans can be included in bankruptcy, but they are not wiped out automatically the way credit card balances or medical bills are. Federal law presumes educational debt survives your case, so to actually erase a student loan you have to file a separate lawsuit inside your bankruptcy and convince a judge that repaying it would cause undue hardship.1Office of the Law Revision Counsel. 11 USC 523 – Exceptions to Discharge
That lawsuit is called an adversary proceeding, and it is the mechanism that decides whether your student loans walk out of bankruptcy with you or follow you home.
Which Loans Face the Hardship Requirement
The statute that shields student loans from automatic discharge covers three categories: loans funded or guaranteed by a government entity or nonprofit, obligations to repay scholarships or stipends, and private “qualified education loans” as defined by the tax code.1Office of the Law Revision Counsel. 11 USC 523 – Exceptions to Discharge A qualified education loan under the tax code is one taken out solely to pay tuition and related higher-education expenses at an eligible school within a reasonable time frame.2Office of the Law Revision Counsel. 26 USC 221 – Interest on Education Loans
All federal Direct Loans and most mainstream private student loans from banks fall squarely inside these categories. Some private debt does not. A loan from a family member, money borrowed from an employer retirement plan, or funds that were not actually used for qualified expenses at an eligible school can sit outside the statute. Those can be discharged like ordinary consumer debt, no hardship showing required. If your “student debt” was really a personal loan or a credit card used to pay tuition, the rules are different, and it is worth having a lawyer look at how your lender actually structured the loan.
The Undue Hardship Standard
To discharge a protected student loan, you have to prove that repayment would impose undue hardship on you and your dependents. Courts use one of two frameworks, depending on where you file.
The Brunner Test
Most courts follow the three-part test from Brunner v. New York State Higher Education Services Corp.3Justia. Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987) You must show all three:
- Based on your current income and expenses, you cannot maintain a minimal standard of living if forced to repay. Judges look at whether your budget covers housing, food, and medical care with nothing left over.
- Your financial situation is likely to persist for a significant portion of the repayment period.
- You have made good-faith efforts to repay, which can include enrolling in lower-payment programs and trying to increase your income.
The good-faith prong historically tripped up borrowers who never signed up for income-driven repayment. Federal guidance now tells government attorneys not to oppose discharge on that basis alone, recognizing that servicers often failed to inform borrowers about their options or wrongfully denied enrollment.4Department of Justice. Guidance for Department Attorneys Regarding Student Loan Bankruptcy Litigation
The Totality of Circumstances Test
A minority of courts, including the Eighth Circuit, reject Brunner’s rigid structure in favor of a broader look at your whole financial picture: past earnings, current obligations, future prospects, and your overall effort to deal with the debt. The burden still rests on you, but the judge has more flexibility to grant relief without forcing every case through the same three checkboxes.
The DOJ Attestation Process for Federal Loans
Since November 2022, federal student loan discharge cases have followed a streamlined review that often avoids a full trial. When you file an adversary proceeding against the Department of Education, the government attorney assigned to your case should offer you a standardized attestation form.5Department of Justice. Student Loan Attestation Form
The form, signed under penalty of perjury, collects your household income, monthly expenses benchmarked against IRS living-expense standards, loan balances and payment amounts, total payments made since borrowing, time in deferment or forbearance, and your assets.5Department of Justice. Student Loan Attestation Form Being 65 or older, or having a disability that limits earning capacity, triggers a presumption in your favor on future ability to repay.6United States Bankruptcy Court. Navigating the New Student Loan Discharge Process
After reviewing the attestation, the government attorney consults with the Department of Education and may agree to a stipulated discharge without a trial. This process has made federal student loan discharge meaningfully more accessible than it was before 2022, when nearly every case required contested litigation. The attestation route applies only to loans held by the Department of Education. Private student loans still go through traditional adversary proceedings against the private lender, which tend to be fought harder.
Partial Discharge Is on the Table
A judge does not have to choose between wiping out your entire loan and leaving it fully intact. Courts can discharge a portion of the debt when your circumstances fall in between. Federal guidance specifically contemplates partial discharge when you have some discretionary income but not enough to cover the standard monthly payment.4Department of Justice. Guidance for Department Attorneys Regarding Student Loan Bankruptcy Litigation After a partial discharge, the remaining balance should be small enough that you can realistically pay it off over the loan term.
Partial discharge can also apply when you have assets that could cover some of the debt but not all of it. Retirement accounts and a primary residence are not supposed to be given heavy weight in the analysis. You are not expected to liquidate a modest home or a small 401(k) to pay student loans.
What Filing the Adversary Proceeding Involves
Student loan discharge does not happen as part of your regular bankruptcy paperwork. You file a separate lawsuit inside your existing case.7United States Bankruptcy Court. Student Loan Discharge Adversary Proceeding – Special Service Rules The complaint names your student loan creditors as defendants and lays out the facts supporting undue hardship. Once the court issues a summons, you serve it on each defendant under federal procedural rules. For federal loans, you also serve the Assistant United States Attorney for your district.
The filing fee is $350, with fee waivers available if you cannot afford it. Defendants typically have 30 to 35 days to respond. The case then enters discovery, and may go to trial if nothing settles. For federal loans, the attestation process often produces an agreed resolution before any trial.
You are allowed to file an adversary proceeding without an attorney, but courts strongly discourage it given the complexity, and procedural missteps can get your case dismissed.8United States Bankruptcy Court. Filing an Adversary Proceeding Without an Attorney Attorney fees for these cases vary widely but commonly start around $4,500 and climb if the matter goes to trial.
Chapter 7 Versus Chapter 13
Which chapter you file in affects how student loans are handled during the case, even if you never pursue a hardship discharge.
In Chapter 7, the automatic stay stops wage garnishment, lawsuits, and collection calls on your student loans the moment you file.9United States Bankruptcy Court. Student Loans – Bankruptcy and Beyond Schools also cannot withhold transcripts as leverage over unpaid pre-petition tuition while the stay is in effect. The stay only lasts a few months in a typical Chapter 7, so if you do not win a hardship discharge, collections resume once the case closes.
In Chapter 13, you repay creditors through a court-supervised plan lasting three to five years. Student loans are treated as nonpriority unsecured debt and receive a proportional share of what you pay to unsecured creditors each month. If your disposable income is low, your student loan creditors may receive very little. The stay buys you three to five years of reduced or zero payments. The catch: interest keeps accruing, and the full remaining balance comes due again when the case closes, unless you separately obtain a hardship discharge through an adversary proceeding. Chapter 13 reduces the immediate pressure. It does not eliminate the debt on its own.
Taxes on a Bankruptcy Discharge
Debt forgiven outside bankruptcy can create taxable income, which catches a lot of borrowers off guard. Student loans discharged through a bankruptcy proceeding do not have that problem. Federal tax law explicitly excludes any debt canceled in a Title 11 bankruptcy case from gross income.10Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness Lenders generally are not even required to issue a 1099-C for personal student loan debt discharged in bankruptcy.11Internal Revenue Service. Instructions for Forms 1099-A and 1099-C
This matters more now than it did a few years ago. A temporary provision in the American Rescue Plan Act excluded all forms of student loan forgiveness from taxable income, but that provision expired at the end of 2025. Starting in 2026, borrowers who receive loan forgiveness through income-driven repayment plans or other non-bankruptcy programs may face a tax bill on the forgiven amount unless they qualify for a separate exclusion like insolvency.12Internal Revenue Service. Publication 4681 – Canceled Debts, Foreclosures, Repossessions, and Abandonments The bankruptcy route stays tax-free regardless of the amount discharged.