Student loan discharge in bankruptcy is harder than discharging other debts, but it is not impossible -- and it is getting easier.
The Adversary Proceeding
Unlike credit cards or medical bills, student loans are not automatically discharged when you file bankruptcy. You must file a separate adversary proceeding (essentially a lawsuit within your bankruptcy case) specifically asking the court to discharge your student loans. This requires filing a complaint, serving it on the lender, and potentially going to trial.
The Undue Hardship Standard
Most courts use one of two tests:
- Brunner Test: Used by most circuits. You must show (1) you cannot maintain a minimal standard of living and repay the loans, (2) your financial situation is likely to persist for a significant part of the repayment period, and (3) you have made good faith efforts to repay.
- Totality of Circumstances: Used by the 8th Circuit and gaining traction elsewhere. The court looks at your complete financial picture without rigid prongs.
2023 DOJ Guidance
The Department of Justice issued new guidance in 2023 directing government attorneys to consent to discharge in cases where the borrower clearly meets the undue hardship standard. This has led to more settlements and fewer contested cases, reducing the cost and difficulty for borrowers.
Who Has the Best Chance?
Borrowers with disabilities, chronic health conditions, older borrowers with limited earning potential, and those with private student loans (which lack income-driven repayment options) have the strongest cases. But even younger borrowers with federal loans have succeeded when their financial circumstances are genuinely dire.