How to File Bankruptcy for Student Loans: The Brunner Discharge Test

To file bankruptcy for student loans, you file a standard Chapter 7 or Chapter 13 case and then open a separate lawsuit inside it, called an adversary proceeding, asking the bankruptcy court to find that repaying the loans would cause you undue hardship. Student loans are never wiped out automatically the way credit card or medical debt is. You have to affirmatively file that second action, prove the hardship, and get a judge’s ruling or a creditor’s stipulation before the debt goes away.¹

A 2022 Department of Justice policy has made this meaningfully easier for federal loan borrowers. The steps below walk through the process from the decision to file through the court’s ruling.

Step 1: Confirm Bankruptcy Is the Right Path

Bankruptcy has serious credit consequences, and the adversary proceeding adds legal work on top of the underlying case. Before filing, check whether an income-driven repayment plan would bring your federal loan payments down to something manageable, potentially as low as zero dollars per month, with forgiveness after 20 or 25 years. Public Service Loan Forgiveness cancels federal balances after 120 qualifying payments in government or nonprofit work.

These options only exist for federal loans. Private lenders have no obligation to offer income-based plans, so if private loans are the core problem, your non-bankruptcy options narrow to direct negotiation with the lender. When the situation is severe and unlikely to improve, bankruptcy can deliver faster and cleaner relief than waiting two decades on a repayment plan.

Step 2: Choose Chapter 7 or Chapter 13

You can pursue a student loan adversary proceeding in either chapter, and the undue hardship standard is identical in both. The differences are practical.

Chapter 7 typically wraps up within a few months. A trustee may liquidate non-exempt assets to pay creditors, and your adversary proceeding runs alongside or after the main case. If you qualify under the means test, this is usually the more direct route.

Chapter 13 runs a three-to-five-year court-supervised repayment plan. You make monthly payments to a trustee, and your student loans can be included in the plan at a reduced amount while the adversary proceeding works through the system. Chapter 13 also provides an automatic stay that protects co-signers from collection during the plan; Chapter 7 does not.

Step 3: Sort Out Which of Your Loans Need a Hardship Showing

The undue hardship requirement applies to two categories of debt. The first is any educational loan or benefit overpayment made, insured, or guaranteed by the government, or funded through a government or nonprofit program. That covers federal Direct loans (subsidized and unsubsidized), PLUS loans, Perkins loans, and federal consolidation loans. The second is “qualified education loans” under the tax code, which captures most private loans used for tuition, room and board, and other qualified expenses at eligible institutions.¹

Not every education-related debt falls into these buckets. Money borrowed beyond the cost of attendance, funds spent on non-educational purposes, or loans from lenders that don’t meet the qualified education loan definition may be treated as ordinary unsecured debt and discharged through the regular bankruptcy process with no adversary proceeding required. Sorting your loans into the right categories early is one of the highest-value pieces of legal work in the case.

Step 4: Gather the Financial Evidence

Whether you go through the DOJ’s streamlined process or contested litigation, you need to document your financial life thoroughly. A snapshot of one bad month is not enough.

Several years of federal and state tax returns, plus recent pay stubs or other proof of current income.
A detailed monthly budget covering housing, utilities, food, transportation, insurance, and medical costs. Courts compare reported expenses against IRS Collection Financial Standards.²
Medical records, physician letters, and any Social Security disability determinations if health limits your ability to work.
A complete history of every federal loan, tracked through the National Student Loan Data System, plus account statements from any private lenders.³
Evidence of good faith: payments you made, applications for income-driven repayment, deferment or forbearance requests, and correspondence with servicers.

Gaps in your financial timeline are exactly what lenders seize on during discovery, so organize the paperwork before you file.

Step 5: File the Adversary Proceeding

The adversary proceeding is a lawsuit filed within your existing bankruptcy case. Start it by filing a Complaint to Determine Dischargeability with the bankruptcy court, identifying each loan you want discharged, the outstanding balance, the original lender, and the current servicer. Most bankruptcy courts provide template complaint forms through the clerk’s office or their website.

The standard $350 adversary proceeding filing fee does not apply when the debtor is the plaintiff. The federal fee schedule explicitly exempts debtors from this charge, and you are always the plaintiff in your own student loan discharge case.⁴ So the court filing itself costs nothing beyond what you already paid to open the bankruptcy case. Attorney fees are the real expense to plan for, generally running between roughly $1,500 and $3,000 or more depending on complexity and whether the case goes to trial.

Once the complaint is filed, the court issues a summons that you must formally serve on each student loan creditor. For federal loans, service goes to the U.S. Attorney’s office for the district where your bankruptcy is pending, and the case is coordinated with the Department of Education.⁵ For private loans, service goes to the lender’s legal department or registered agent. After service, the defendant has 30 days to respond.⁶

Step 6: Prove Undue Hardship

Congress never defined “undue hardship” in the statute, so courts developed their own tests. Most federal circuits use the Brunner test from a 1987 Second Circuit decision; a handful, including the First and Eighth, use a broader “totality of the circumstances” approach.⁷ Both come down to the same core question: can you pay these loans without falling below a basic standard of living, and is that likely to change?

The Brunner Three-Prong Framework

Under Brunner, you must satisfy all three prongs. First, your current income minus necessary living expenses must leave nothing for loan payments without dropping below a minimal standard of living. Second, that financial hardship must be likely to persist for a significant portion of the repayment period, backed by lasting factors like a permanent disability, chronic illness, advanced age, or extended unemployment. A temporary rough patch doesn’t qualify. Third, you must show good faith efforts to repay before filing, which can include making payments when possible, applying for income-driven repayment, seeking deferments, or communicating with your servicer.

The DOJ Streamlined Process for Federal Loans

In November 2022, the Department of Justice and the Department of Education introduced a standardized process that reshaped how federal student loan discharge cases are handled. Before this guidance, the federal government fought discharge requests aggressively by default. The new framework instructs DOJ attorneys to recommend discharge when the evidence supports it.⁵

The centerpiece is an attestation form you complete under penalty of perjury. It asks for your current monthly household income, outstanding loan balances, current monthly payment, and whether your expenses exceed thresholds based on household size drawn from IRS Collection Financial Standards.⁸ You verify income using recent tax returns, four consecutive pay stubs, or other documentation.

The guidance creates a presumption that your inability to pay will persist if any of the following apply: you’re 65 or older, you have a disability or chronic injury affecting earning potential, you’ve been unemployed for at least five of the last ten years, you never completed the degree the loan funded, or the loan has been in repayment status for ten years or more.⁹ The good faith bar is low: making even a single payment counts, and so does applying for a deferment, enrolling in income-driven repayment, consolidating, or responding to servicer outreach.

If DOJ attorneys review your attestation and agree all three factors are met, the government stipulates to the facts and recommends discharge to the court rather than forcing a trial. This process applies only to federal loans. Private lenders will evaluate your case on their own terms and have no obligation to follow the DOJ framework.

What the Court Can Order

A judge has three options. Full discharge eliminates the entire student loan obligation. Partial discharge reduces the balance to an amount the court determines you can repay. The court can also restructure the loan by lowering the interest rate or extending the repayment period. Which outcomes are available depends on the bankruptcy chapter and the specific facts of your case.

If any creditor contests your complaint, the case moves into discovery, where the lender can request additional financial documents and written answers to questions. Cases that don’t settle go to trial before a bankruptcy judge.

Co-Signers Are Not Released

If someone co-signed your loan, your discharge does not release them. Federal law is explicit that discharging your debt does not affect the liability of any other person on the same debt.¹⁰ After your discharge, the lender can pursue your co-signer for the full remaining balance. A co-signer in financial distress would need to file their own bankruptcy and their own adversary proceeding. Chapter 13 temporarily shields co-signers through the automatic stay during the repayment plan, but that protection ends when the plan concludes.

Tax Treatment of the Discharged Balance

Debt canceled outside bankruptcy is generally taxable income. Student loans discharged in a Title 11 bankruptcy case are excluded from gross income entirely under the tax code.¹¹ If you receive a 1099-C from the lender after discharge, you report the cancellation on your return but exclude the amount from income by attaching IRS Form 982. That is a meaningful advantage over income-driven repayment forgiveness, where borrowers may face a tax bill on the forgiven amount once a temporary exclusion expires at the end of 2025.¹²

1
Office of the Law Revision Counsel. 11 USC 523 – Exceptions to Discharge
2
Internal Revenue Service. Collection Financial Standards
3
U.S. Department of Education. National Student Loan Data System
4
United States Courts. Bankruptcy Court Miscellaneous Fee Schedule
5
Department of Justice – U.S. Trustee Program. Student Loan Guidance
6
Legal Information Institute. Federal Rule of Bankruptcy Procedure 7012 – Defenses and Objections
7
United States Department of Justice. Guidance for Department Attorneys Regarding Student Loan Bankruptcy Litigation – Section: Applicable Law
8
United States Department of Justice. Attestation in Support of Request for Stipulation Conceding Dischargeability of Student Loans
9
United States Department of Justice. Guidance for Department Attorneys Regarding Student Loan Bankruptcy Litigation
10
Office of the Law Revision Counsel. 11 USC 524 – Effect of Discharge
11
Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness
12
Taxpayer Advocate Service. What to Know about Student Loan Forgiveness and Your Taxes