- February 28, 2025
- Kelvin Birk
- Bankruptcy
If you are wondering “Can you file bankruptcy on student loans?” then you’re not alone. Many students take out large student loans during college and struggle to pay them back. That’s because college tuition seems to increase significantly each year, but annual salaries for jobs just out of college don’t pay enough to meet monthly student loan repayment obligations. It’s a trap that many people fall into.
While in most instances student loans cannot be discharged through bankruptcy, this is not always the case. There are certain circumstances where you can discharge student loans, and laws regarding bankruptcy have changed to make it easier to get relief. Even if your student loans are not discharged, due to the relief bankruptcy can bring from having to pay other debts, filing can make it possible for you pay off your student loans and get a fresh financial start.
The situation is complicated and still changing, so if you have become overwhelmed with debt that includes student loans, it can help to consult with a knowledgeable Missouri bankruptcy attorney. Your attorney can analyze your individual situation and determine whether bankruptcy or some other solution is the best way for you to obtain relief from at least part of your student loan debt or get caught up on payments.
Requirements to Discharge Student Loans in Bankruptcy
Student loans are notoriously difficult — but not impossible — to discharge in bankruptcy. Traditionally, in order to do so you must show that payment of the debt “will impose an undue hardship on you and your dependents,” according to Student Loan Borrower Assistance at the National Consumer Law Center. Courts use different tests to determine whether an individual borrower has established undue hardship.
The most common test is the Brunner test. It requires a showing that:
- The debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for himself or herself and dependents if forced to repay the student loans.
- Extenuating circumstances exist indicating that this state of affairs is likely to persist for a significant amount of the student loan repayment period.
- The person has made good faith efforts to repay the loans. (Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987)
Whether a student loan is discharged due to hardship is not automatically determined in the bankruptcy process. To do so, you must file a petition — called an adversary proceeding — to get a determination. In this case, your attorney would request that the court find that repayment would impose undue hardship.
To prove your case, your attorney would have to:
- examine your individual situation
- gather supporting documents such as financial, educational, employment and other records
- utilize your testimony and that of supporting witnesses to show undue hardship and good faith.
If undue hardship is proven, your student loan will be completely canceled.
New Rulings on Student Loan Bankruptcy
On November 17, 2022, President Biden announced a significant change in how student loans will be treated in order to make the process more consistent. Borrowers must still file a lawsuit against the Department of Education in bankruptcy court. The Department of Justice attorneys will then work with the Department of Education to evaluate each case against certain criteria to determine if a full or partial discharge is possible. They will make recommendations, but the bankruptcy judge will make the final decisions as to whether to discharge your debts.
In addition, effective July 1, 2024, a new Department of Education regulation has substantially changed how income-driven repayment (IDR) plans are treated for student loan borrowers in Chapter 13 bankruptcy cases. Debtors now receive credit toward loan forgiveness for each month they make required plan payments under a confirmed Chapter 13 bankruptcy plan, and IDR enrollment is recommended but not required to receive this credit.
While the “undue hardship” requirement under the Bankruptcy Code remains in place, its application has become more borrower-friendly to debtors. Courts may use either the Brunner Test or the Overall Situation Test to evaluate undue hardship, but the interpretation of these tests has become more flexible under the new guidelines. As a result, many more cases have resulted in full or partial discharge.
Process for Seeking Discharge of Student Loans
To seek discharge of student loans you must first file for either Chapter 7 or Chapter 13 bankruptcy. You must complete a borrower-attestation form, which will be reviewed by the Justice Department and the Department of Education.
You are required to list all of your debts, including your student loans, among the creditors in your bankruptcy filing in Missouri, but simply listing it doesn’t mean that the student loan will be discharged. The threshold for proving that the loan creates an “undue hardship” is high, and many student-loan holders cannot meet it. For the loan to fall into this category, it has to be more than inconvenient or burdensome. The debt must make meeting daily living expenses – like food, shelter and transportation — almost impossible.
The new criteria make it easier, and the Justice Department now considers several factors when evaluating cases, including:
- Whether you have made good faith efforts to repay the loan
- Your current ability to pay based on income and expenses
- Your future ability to pay, considering factors like age, disability, employment history, and education.
While these changes have made it easier to discharge student loans in bankruptcy, it’s important to note that the process is still complex, and outcomes can vary. In any case, filing for bankruptcy can help. For example, Chapter 13 provides a 3- to 5-year plan to repay some or all debts in monthly installments based on ability to pay, and it can reduce your overall monthly debt burden. While you are making payments, all creditors, including student loan lenders and agencies, must stop collection of debts. Chapter 13 bankruptcy has become more attractive for federal student loan borrowers, as they can potentially make progress toward loan forgiveness while addressing other debts.
Get Help from a Student Loan Discharge Lawyer
If you are overwhelmed with debt and don’t know where to turn, the skilled and compassionate legal team at the Birk Law Firm can help provide guidance and take care of all necessary legal hurdles and requirements to help achieve a satisfactory result. Attorney Kelvin Birk is a Certified Public Accountant as well as a lawyer, with more than 30 years of experience in accounting and tax and business consulting. He knows how to help you determine whether Chapter 7 or Chapter 13 bankruptcy is right for you and whether you may qualify for student loan forgiveness. Even if bankruptcy is not for you, he can help you explore other options, such as negotiating with the lender to get more favorable terms and modification or consolidation of the student loan debt to enable you to get caught up on payments.
Call us today for a free consultation to discuss your individual situation and get started on the road to a brighter financial future.
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Attorney Kelvin Birk
Kelvin Birk is a lawyer as well as a certified public accountant, with more than 30 years of experience in accounting and tax and business consulting, and more than 20 years of experience in numerous legal matters. This combined expertise allows our law firm to provide a level of service above that of other firms. Whatever your legal situation, your attorney at Birk Law Firm can counsel you as to the tax implications. We have experience in providing myriad legal representation services to residents of southeast Missouri and other areas.. [ Attorney Bio ]
