Yes, You Can Discharge Student Loans in Bankruptcy—Here’s What You Need to Know

For decades, borrowers have heard that student loans are almost impossible to discharge in bankruptcy. While it’s never been easy, discharging federal student loans has always been legally possible under the U.S. Bankruptcy Code. And now, thanks to new federal guidance issued in November 2022, the process has become more objective, consistent, and increasingly viable for borrowers seeking meaningful relief.

To qualify for student loan discharge in bankruptcy, a borrower must first file a traditional bankruptcy—either Chapter 7 or Chapter 13—and demonstrate that repaying their student loans would cause an “undue hardship.” This is done through a separate legal process called an adversary proceeding, a sort of lawsuit within the bankruptcy case specifically targeting the student loan debt.

Historically, this process has been complicated and inconsistent with a high failure rate. Borrowers were required to meet strict standards set by their local court—either the Brunner test or the Totality of Circumstances test—to prove undue hardship. These tests involve showing a present and future inability to repay, along with evidence of good-faith efforts to manage the debt but granting the discharge inconsistent and subjective. Even when borrowers met these requirements, loan servicers and the U.S. Department of Education often opposed the discharge, leading to long, costly litigation.

But change arrived in November 2022, when the Department of Justice and the Department of Education jointly issued new guidance to streamline and simplify the process. Now, borrowers who pursue discharge of their student loan debt need to submit an attestation form that outlines their income, expenses, and financial outlook. The DOJ uses these responses to make a standardized, fact-based recommendation to the court—bringing more consistency and fairness to the process.

The results speak for themselves. Since the rollout of this new guidance, filings have increased, and early data shows that most borrowers who qualify are receiving full or partial discharge. In fact, over 95% of cases using the new process result in some form of relief.

Still, there are practical challenges. Because adversary proceedings are formal court actions, borrowers often struggle to find attorneys who specialize in student loan discharge cases. Legal representation can be expensive, and not every bankruptcy attorney is familiar with the nuances of student loan law. However, Legal Aid societies can be a great starting point for qualifying borrowers, and many bankruptcy attorneys now offer payment plans or referrals to attorneys experienced in student loan cases.

If you’ve previously filed bankruptcy or are considering it now and believe your student loans are an undue burden, it’s worth speaking with a bankruptcy attorney who understands this evolving area of law. With the new DOJ and Department of Education process, relief may be closer—and more attainable—than ever before.

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