Can You Declare Bankruptcy on Student Loans: The Undue Hardship Test

You can declare bankruptcy on student loans, but wiping them out takes an extra step that other debts don’t require. Federal law treats educational debt as nondischargeable unless you file a separate lawsuit inside your bankruptcy case and prove that repayment would cause “undue hardship.” That standard has a reputation for being nearly impossible to meet, and for a long time it was. A federal process introduced in November 2022 has changed that meaningfully for borrowers with government-held loans, and recent data suggests roughly three out of four borrowers who pursue discharge now succeed.

What Undue Hardship Means

The rule that blocks a routine discharge sits in 11 U.S.C. § 523(a)(8), which exempts student debt from bankruptcy discharge unless repaying it “would impose an undue hardship on the debtor and the debtor’s dependents.”¹ Congress never defined the phrase, so federal courts built their own frameworks. Two dominate.

The Brunner Test

Most federal circuits apply the three-part test from Brunner v. New York State Higher Education Services Corp. (1987). The Second, Third, Fifth, Seventh, Ninth, and Eleventh Circuits all use it. You have to show:

Based on your current income and expenses, you cannot maintain a minimal standard of living while repaying the loans.
Your financial situation is likely to continue for a significant portion of the repayment period, from factors like permanent disability, chronic illness, or long-term barriers to earning.
You made a good faith effort to repay before seeking discharge, usually shown by past payments, enrollment in income-driven repayment plans, or documented contact with your servicer.

Older decisions read Brunner harshly, sometimes demanding a “certainty of hopelessness.” That language has faded. More recent rulings recognize that the test does not require permanent or extreme hardship, just a situation where repayment is genuinely not feasible.

The Totality of the Circumstances Test

The Eighth Circuit uses a broader approach that weighs your past, present, and reasonably reliable future financial resources against your necessary living expenses and any other relevant facts, without rigid prongs. The Fourth and Sixth Circuits sit in the middle, referencing Brunner but applying it with more flexibility. Which test governs your case can affect your odds, so knowing your circuit’s standard matters before you file.

The Federal Streamlined Process

In November 2022, the Department of Justice and the Department of Education launched a process designed to resolve discharge cases for federal loans without a full trial. It covers government-held loans only: all Direct Loans and any FFELP or Perkins loans the government holds.² Private loans are not covered.

You file your adversary proceeding as normal, then complete an attestation form that tracks the Brunner prongs. The form asks about your present finances, whether your hardship is likely to persist, and what you did to try to repay.² You provide household income, monthly expenses, loan balances, payment history, and assets including retirement accounts and real estate.³

The important shift is how expenses are measured. Instead of a judge’s subjective view of what counts as “minimal,” the form uses IRS Collection Financial Standards. For a single person those standards allow $839 per month for food, clothing, housekeeping, and personal care; a family of four gets $2,129.⁴ Housing, transportation, and healthcare are evaluated against separate local standards. If your income after those allowed expenses cannot cover your loan payments, the present-hardship prong is satisfied.

Two circumstances trigger a presumption that hardship will persist: being 65 or older, or having a disability that limits your ability to earn.² An Assistant U.S. Attorney reviews your form and coordinates with the Department of Education. If the government agrees discharge is warranted, both sides sign a stipulated judgment and skip trial. If not, you litigate the case, and the attestation’s presumptions no longer bind the court.

Before this process existed, the government routinely contested every case. There is now a structured settlement path for borrowers who qualify.

Which Loans Are Covered

Section 523(a)(8) reaches two categories of educational debt. The first is any loan made, insured, or guaranteed by a government entity, or made under a program funded by a government entity or nonprofit institution. That captures all federal loans: Direct Subsidized and Unsubsidized, PLUS loans, and older FFELP and Perkins loans.¹

The second is private “qualified education loans” as defined in the Internal Revenue Code, meaning loans used for tuition, fees, room and board, books, and other costs of attendance at an eligible institution.¹ A private bank loan that paid for college requires the same undue hardship showing as a federal loan.

Loans That Escape the Undue Hardship Test

Not everything a student borrows counts as a protected educational loan. Money taken out for bar exam preparation, medical residency relocation, or amounts above the school’s certified cost of attendance often falls outside the statutory definition. Those debts can be treated like ordinary consumer debt in bankruptcy, with no hardship showing required. If your loan portfolio is mixed, identifying which balances are actually protected is the first strategic decision in your case.

Chapter 7 or Chapter 13

You can pursue discharge under either chapter, but the practical difference is real. Chapter 7 moves fast, typically three to four months, and your student loans survive unless you separately win the adversary proceeding. Skip the adversary proceeding or lose it, and your balance emerges intact.

Chapter 13 treats student loans as nonpriority unsecured debt inside your repayment plan, similar to credit card balances. During the three-to-five-year plan, the automatic stay stops wage garnishment and other collection. Your loans receive only a share of what you pay toward unsecured debts under the plan, which may be little or nothing depending on your disposable income. Interest keeps accruing, so the balance can grow. But you can file the adversary proceeding while the plan protects you, and if you lose, you still had years of relief.

Filing the Adversary Proceeding

The lawsuit is called an adversary proceeding. You start it by filing a “Complaint to Determine Dischargeability of a Debt” with your bankruptcy court. Each loan servicer or lender must be named as a defendant at the correct corporate address; procedural mistakes here cause delay or dismissal.

The court’s fee schedule lists a $350 filing fee for an adversary proceeding, but debtors are exempt when they are the plaintiff.⁵ Because you are the one filing to discharge your own loans, you should not have to pay it. Not every court clerk volunteers this, so be prepared to cite the schedule.

After filing, the court issues a summons that you must deliver to each defendant through service of process, usually a process server or certified mail depending on local rules. Each defendant then has 30 days to answer.⁶

For federal loans, the Assistant U.S. Attorney assigned to your case will usually ask for the attestation form early. If the government decides discharge is appropriate, both sides enter a stipulated judgment and the case ends.² If the government contests discharge, or if your loans are private, the case moves through discovery, a possible pre-trial conference, and trial before a judge.

Evidence to Gather Before You File

The proof you assemble before filing largely decides whether your case settles or goes to trial. Courts and the DOJ’s attestation process both want the same picture: what you earn, what you spend, what you owe, and why things are unlikely to improve.

Pull two to three years of federal tax returns and six months of recent pay stubs. If your income fluctuates through freelance work, seasonal employment, or disability benefits, collect everything that shows the pattern. Gaps and inconsistencies get scrutinized.

Build a detailed monthly expense breakdown covering housing, utilities, food, transportation, healthcare, insurance, and childcare. Because the attestation form measures spending against IRS Collection Financial Standards, knowing those benchmarks before you file tells you how your case looks from the government’s side.⁴ Spending well above those standards will draw questions.

If a physical or mental health condition drives your hardship, medical records and a doctor’s statement explaining how it limits your earning capacity carry far more weight than your own testimony. If age or career obsolescence is part of the case, documented failed job searches or vocational assessments strengthen the persistent-hardship prong.

Compile your repayment history. The attestation form asks for total payments made, the monthly amount, how many times you sought forbearance or deferment, and how often you contacted your servicer about payment options.³ Any enrollment in income-driven repayment shows good faith. The SAVE plan is being wound down following a proposed settlement in ongoing litigation.⁷ If you were enrolled in SAVE and placed in forbearance, document that; it shows you tried to use available repayment options.

What This Will Cost

The adversary proceeding has no filing fee for borrowers, but attorney fees are the real expense. A standard Chapter 7 bankruptcy runs $1,500 to $2,500 in legal fees. An adversary proceeding on top adds significantly. Attorneys handling student loan discharge typically charge between $3,000 and $20,000 depending on case complexity, whether the case settles or goes to trial, and their billing structure. Hourly rates range from $100 to $600. Some bankruptcy attorneys will not handle adversary proceedings at all, so you may need a separate lawyer for the discharge portion.

If those fees are out of reach, some legal aid organizations take student loan discharge cases for low-income borrowers. Your local bankruptcy court’s website or clerk’s office can point you toward resources. The streamlined process has also reduced costs for federal cases that settle early, because the bulk of attorney time historically went into trial preparation.

Partial Discharge and Taxes

Discharge is not always all-or-nothing. If you can afford some payments but not the full amount, a court may discharge part of your balance and leave you responsible for the rest. Several federal appeals courts have recognized this authority, and the DOJ’s own guidance tells government attorneys to consider recommending partial discharge when a borrower can maintain a minimal standard of living while making reduced payments.⁸ The Eighth Circuit’s bankruptcy appellate panel has ruled that individual loans generally cannot be partially discharged, but most jurisdictions allow it.

On taxes, debt forgiven in bankruptcy is excluded from your taxable income under federal law.⁹ You will not get a surprise tax bill for the discharged balance. This matters because outside bankruptcy, forgiven student debt is generally taxable. The American Rescue Plan Act temporarily exempted student loan forgiveness from federal taxes through December 31, 2025, but that exemption expired January 1, 2026.¹⁰ Forgiveness through an income-driven repayment plan or another non-bankruptcy program in 2026 or later could be taxable. Bankruptcy discharge avoids that entirely.

If You Lose the Case

Losing the adversary proceeding does not make your situation legally worse. Your loans remain nondischargeable, exactly as they were, and the rest of your bankruptcy case continues unaffected. You face no penalty for trying. The practical cost is the attorney fees and time you put into the attempt.

You can appeal to the district court or bankruptcy appellate panel and then to the circuit court of appeals. Appeals are expensive and slow, but they exist. You can also file a new adversary proceeding in a future bankruptcy case if your circumstances change materially, such as a worsening health condition or a job loss that strengthens your hardship claim. The ruling applies to the facts as they existed at trial, not permanently. Even unsuccessful cases sometimes push a servicer, especially a private lender, into a settlement with a reduced balance or better repayment terms rather than pay for its own trial preparation.

1
Office of the Law Revision Counsel. 11 U.S.C. 523 – Exceptions to Discharge
2
United States Bankruptcy Court. Navigating the New Student Loan Discharge Process: Overview and Additional Resources
3
Justice.gov. Student Loan Attestation Fillable Form
4
Internal Revenue Service. National Standards: Food, Clothing and Other Items
5
U.S. Courts. Bankruptcy Court Miscellaneous Fee Schedule
6
Legal Information Institute. Federal Rules of Bankruptcy Procedure – Rule 7012
7
Federal Student Aid. IDR Plan Court Actions: Impact on Borrowers
8
Justice.gov. Student Loan Discharge Guidance
9
Office of the Law Revision Counsel. 26 U.S.C. 108 – Income From Discharge of Indebtedness
10
Internal Revenue Service. Canceled Debt – Is It Taxable or Not?