What Happens to Student Loans in Chapter 7 Bankruptcy?

If you file Chapter 7, your student loans do not disappear when the rest of your dischargeable debt does. Federal law treats student loans in Chapter 7 bankruptcy as a special category that survives the standard discharge order, and getting rid of them requires a separate step: an adversary proceeding in which you ask the bankruptcy judge to eliminate the debt on undue hardship grounds. A Department of Justice process introduced in November 2022 has made that step far more accessible than it used to be, and recent outcomes bear that out.

Why the Standard Discharge Skips Student Loans

Under 11 U.S.C. § 523(a)(8), educational debts are excepted from the Chapter 7 discharge. The exception covers federal student loans, loans made or backed by a government entity or nonprofit, obligations to repay scholarships or stipends, and private loans that meet the tax code’s definition of a “qualified education loan.”¹ When your discharge order arrives at the end of the case, those loans are still fully enforceable.

Filing does buy you time. The automatic stay under 11 U.S.C. § 362 halts every collection action the moment your petition is filed, including wage garnishments, calls from your servicer, and any pending lawsuits.² A typical Chapter 7 case runs four to six months.³ Once it closes, collection resumes unless you have separately obtained a discharge of the loans.

The Adversary Proceeding

An adversary proceeding is a lawsuit filed inside your bankruptcy case. You file a complaint naming your loan holder as the defendant, the court issues a summons, and the matter is litigated to judgment or settlement.⁴ Federal Rule of Bankruptcy Procedure 4007(b) sets no filing fee for an adversary to determine dischargeability.⁵

Service matters. For federal loans you generally serve the Department of Education, the U.S. Attorney’s office for your district, and the Attorney General in Washington. For private loans, you serve the loan holder directly. Your local bankruptcy court usually publishes the specific service addresses. Bad service can add months to your case.

The ideal timing is to file the adversary while your Chapter 7 case is still open, but a closed case is not the end of the road. Under 11 U.S.C. § 350(b), you can move to reopen a closed case “to accord relief to the debtor, or for other cause,” and in some jurisdictions the adversary can proceed without a formal reopening. There is no statutory deadline for filing a student loan adversary proceeding.

Expect costs beyond the zero filing fee. A process server has to deliver the complaint, and most bankruptcy attorneys charge separately for the adversary on top of the base Chapter 7 fee. Get a written estimate before you file, because a case that goes to trial costs meaningfully more than one the government stipulates to.

What “Undue Hardship” Means

The bankruptcy code requires you to prove that repaying the loans would impose an undue hardship on you and your dependents, but it does not define the term. Courts have filled that gap, and which test applies depends on your federal circuit.

The Brunner Test

A majority of circuits follow the three-part test from the Second Circuit’s 1987 decision in Brunner v. New York State Higher Education Services Corp. You must show all three:

Based on current income and expenses, you cannot maintain a minimal standard of living if forced to repay.
Additional circumstances indicate this situation is likely to persist for a significant portion of the repayment period.
You made good faith efforts to repay before seeking discharge.

Brunner has a reputation for being punishing, especially on the persistence prong, though the DOJ’s 2022 guidance has softened how government attorneys evaluate it.⁴

The Totality of the Circumstances Test

Some circuits, including the Eighth, weigh your entire financial picture instead of running each factor as a separate hurdle. Courts look at your past, present, and reasonably foreseeable resources; reasonable living expenses for you and your dependents; and any other facts relevant to your situation.⁴

Partial Discharge Is on the Table

A judge is not stuck between all and nothing. Using the equitable powers in 11 U.S.C. § 105(a), courts have granted partial discharges where a debtor cannot repay the full balance but could handle a reduced one. The Ninth Circuit endorsed the approach in In re Saxman (2003). In one Vermont case, the court discharged roughly $36,500 of a debtor’s balance while preserving $9,000 the debtor could realistically pay.⁶

The DOJ Attestation Process

In November 2022, the Department of Justice and the Department of Education rolled out a standardized process for evaluating whether the government will oppose a student loan discharge. The centerpiece is a sworn attestation form you complete and submit to the government attorney assigned to your case. The form was last updated in May 2025.⁷ The attestation covers three factors.

Present ability to pay. You report monthly income and expenses. The government attorney compares your figures to the IRS National and Local Standards, which set allowances for basic living expenses and adjust for housing, utilities, and transportation by county and household size.⁸ If reasonable expenses meet or exceed income, this factor favors discharge.

Future inability to pay. The form lists conditions that trigger a presumption your hardship will continue: disability or chronic injury affecting earning capacity, being at or near retirement age, protracted unemployment, not completing your degree, or loans that have been in repayment for at least ten years (excluding time enrolled as a student).⁷ Check any that apply and the government attorney presumes your circumstances are unlikely to materially improve.⁸

Good faith efforts. The government looks at whether you tried to earn income, manage expenses, and address the debt. Enrollment in an income-driven repayment plan counts as evidence. Not enrolling is not automatically disqualifying if you have a reasonable explanation, such as confusing options or a servicer that never told you about them. Contacting your servicer about payment options also weighs in your favor.⁸

Gather tax returns, pay stubs, and any medical or employment documentation before you sit down with the form. Thorough documentation shortens the DOJ’s review. If the government concludes repayment would be an undue hardship, it can stipulate to the facts and recommend discharge. The judge makes the final call, but a DOJ stipulation carries real weight. If the government opposes, the matter goes to trial.⁴

Some Private Loans Do Not Need the Hardship Standard at All

Section 523(a)(8) only protects two categories of educational debt: loans made, insured, or guaranteed by a government entity or nonprofit, and “qualified education loans” as defined in the Internal Revenue Code.¹ Private loans that fall outside both categories can be discharged in a regular Chapter 7 without an adversary proceeding.

The Consumer Financial Protection Bureau has identified private educational loans that often fall outside the exception:

Loans that exceeded the school’s cost of attendance, at least for the excess amount.
Loans for schools not eligible for federal Title IV funding, including unaccredited colleges, foreign schools, and uncertified trade programs.
Bar exam and other professional licensing exam loans, including study and living expenses.
Medical or dental residency loans covering fees, living costs, and relocation.
Loans taken while the borrower was enrolled less than half-time.

Loans that fit these descriptions belong on the ordinary schedule of unsecured debts in your petition.⁹ Many borrowers assume every educational debt is untouchable and never look closely at their private loans; some portion may be dischargeable through the normal process.

Cosigners Are Not Protected

Discharging your loans does not protect anyone who signed with you. Your personal obligation goes away, but the creditor keeps the right to pursue the cosigner for the full remaining balance.¹ Chapter 7 has no co-debtor stay. That protection exists only in Chapter 13, and even there it ends when the case closes, converts, or is dismissed.¹⁰ If a parent or family member cosigned, have the conversation before you file, not after.

Taxes on the Discharged Balance

Cancelled debt is usually taxable income, but not this kind. Under 26 U.S.C. § 108(a)(1)(A), debt discharged in a Title 11 bankruptcy case is excluded from gross income entirely.¹¹ This exclusion is permanent and is separate from the American Rescue Plan Act provision that covered certain non-bankruptcy student loan forgiveness through 2025.

File IRS Form 982 with your tax return for the year of the discharge and check box 1a to indicate it happened in a Title 11 case. The discharged amount will not increase your taxable income.¹²

How Often This Works Now

Before the 2022 guidance, student loan adversary proceedings were rare and usually lost. Most borrowers never tried. Recent estimates suggest borrowers using the DOJ process have obtained full or partial discharge in the large majority of cases filed since the guidance took effect, with the Department of Education reporting successful outcomes in nearly all proceedings where debtors completed the attestation. The old advice that student loans cannot be discharged in bankruptcy is out of date. The process still takes work, documentation, and in most cases a lawyer, but the door is open in a way it was not a few years ago.

1
Office of the Law Revision Counsel. 11 USC 523 – Exceptions to Discharge
2
Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay
3
United States Courts. Chapter 7 – Bankruptcy Basics
4
Department of Justice. Student Loan Discharge Guidance – Guidance Text
5
United States Bankruptcy Court. Navigating the New Student Loan Discharge Process – Overview and Additional Resources
6
U.S. Bankruptcy Court – District of Vermont. Memorandum of Decision Granting Debtor a Partial Discharge of Student Loans
7
Justice.gov. Student Loan Attestation Fillable Form
8
Department of Justice. Student Loan Discharge Guidance – Fact Sheet
9
Consumer Financial Protection Bureau. Busting Myths About Bankruptcy and Private Student Loans
10
Office of the Law Revision Counsel. 11 USC 1301 – Stay of Action Against Codebtor
11
Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness
12
IRS. Instructions for Form 982 – Reduction of Tax Attributes Due to Discharge of Indebtedness