Federal Student Loans in Bankruptcy

How does the student loan rule actually work in bankruptcy?

A bankruptcy discharge wipes out personal liability for most debts, but the Bankruptcy Code lists exceptions in 11 U.S.C. § 523. Court guidance puts student loans in a specific subgroup of those exceptions: debts that are nondischargeable "unless the debtor files an adversary proceeding against the creditor and proves to the Court that it would be an undue hardship not to discharge the debt, such as student loan debts" (U.S. Bankr. Ct. D. Ariz., Choosing Your Chapter). That phrasing matters. Some exceptions are automatic and nothing you do changes them. This one is conditional — it holds unless a specific action is taken and a specific showing is made. So filing Chapter 7 or Chapter 13 and receiving your ordinary discharge order leaves the student loan standing. The loan is not discharged by silence, and it is not discharged by listing it on your schedules. The separate proceeding is the mechanism.

• The ordinary discharge order does not reach the loan.
• The debtor is the one who has to start the separate proceeding.
• The standard is undue hardship, decided by the court.

What is an adversary proceeding, and why is one needed here?

An adversary proceeding is litigation conducted inside a bankruptcy case. One court describes it plainly: disputes in a bankruptcy case — over what property is worth, how much is owed, or "whether the debtor should be discharged from certain debts" — give rise to litigation, and that litigation "is conducted in much the same way that civil cases are handled in the district court," with discovery, pretrial proceedings, settlement efforts, and a trial (Bankr. D. Md. official page — Legal Overview). For student loans you file a complaint, the loan holder is the defendant, and the court decides. Where the loan is a federal Department of Education loan, the Department of Justice defends it. That is a real lawsuit with real deadlines, which is a large part of why this route is used less often than people expect. It is also why courts publish local guidelines for it rather than treating it as routine paperwork.

• It is a complaint filed within the existing bankruptcy case.
• The loan holder or servicer is named as a defendant.
• Discovery, deadlines and a possible trial all apply.

What does federal law say about student loans and discharge?

Section 523 is the exceptions-to-discharge section of the Bankruptcy Code — it opens by stating that a discharge under section 727, 1141, 1192, 1228(a), 1228(b), or 1328(b) "does not discharge an individual debtor from any debt" in the listed categories (11 U.S.C. § 523). The educational-loan category has been reworked by Congress over time; a 1990 amendment broadened it from an "educational loan made, insured, or guaranteed by a governmental unit" to also cover an "educational benefit overpayment," loans under any program funded in whole or in part by a governmental unit or nonprofit institution, and obligations to repay funds received as an educational benefit, scholarship or stipend (11 U.S.C. § 523, amendment notes). Read that breadth carefully: it is not limited to what people casually call a student loan. Court guidance summarising the same ground refers to "debts for most government funded or guaranteed educational loans or benefit overpayments" (Bankr. N.D. Iowa official page — FAQs: Debtor).

• Section 523 lists the debts a discharge does not reach.
• The educational category covers overpayments and benefit obligations, not only conventional loans.
• Courts describe the coverage as "most" government-funded or guaranteed educational loans.

What changes the answer in an undue hardship case?

Since November 17, 2022, Department of Justice attorneys handling these cases follow published guidance that applies where the Department of Education is a defendant. It describes what the government weighs. On present ability to pay, department attorneys are directed to consult Education and generally use the monthly payment due under a standard repayment plan for the loan, not the amount available under an income-driven repayment plan, when assessing ability to pay (U.S. Bankr. Ct. S.D. Ala., 11/17/22 Guidance). On the future, the guidance states a presumption that an inability to repay will persist in certain circumstances, including that the debtor is 65 or older, has a disability or chronic injury affecting income potential, has been unemployed for at least five of the last ten years, failed to obtain the degree the loan paid for, or the loan has been in a non-in-school payment status for at least ten years. Those presumptions are rebuttable.

Where do local court rules and practice differ?

The underlying discharge exception is federal, so this answer does not change from state to state the way exemptions do. What changes is local procedure. The Central District of California publishes Student Loan Guidelines specifically for adversary proceedings under 11 U.S.C. § 523(a)(8) where the Department of Education is the defendant, including a form order extending the Department's response deadline by 120 days and continuing the status conference (U.S. Bankr. Ct. C.D. Cal., Our Guidelines). The Eastern District of Pennsylvania runs a Student Loan Management Program by local rule, aimed at getting debtors and loan holders to communicate and reach repayment agreements rather than litigate; its own text says participation "provides no greater eligibility for any student loan resolution option than the debtor would have outside the SLM Program and/or bankruptcy" (E.D. Pa. LBR 9019-3). Check your own district. We do not publish a verified rule for every one.

• The discharge exception itself is federal and uniform.
• Deadlines, guidelines and programs are local and vary by district.
• Find your court through our court finder before assuming a local program exists.

What does this look like in a Chapter 13 case?

Chapter 13 is a repayment plan, and the plan's contents are governed by 11 U.S.C. § 1322. Two features matter here. A plan may designate classes of unsecured claims but "may not discriminate unfairly against any class so designated," and it may provide for curing defaults and maintaining payments while the case is pending on a claim whose last payment falls due after the plan's final payment (11 U.S.C. § 1322). That is the structural hook districts use to handle long-term student loans inside a plan. The E.D. Pa. program shows it in practice: where the parties reach a resolution, the amended plan must carry non-standard provisions stating that the debtor "is not seeking nor does this Plan provide for any discharge, in whole or in part, of student loan obligations under 11 U.S.C. §523(a)(8)," and separately classifying the loan (E.D. Pa. LBR 9019-3). Managing the loan and discharging it are two different requests.

• Chapter 13 can address how a student loan is paid during the plan.
• Separate classification exists but must not unfairly discriminate.
• Handling the loan in a plan is not the same as asking for discharge.

What documents and information are involved?

You start from the ordinary bankruptcy filing. A case begins with a petition plus statements listing assets, income, liabilities, and every creditor and what they are owed (Bankr. D. Md. official page — Legal Overview), and the Chapter 7 filing fee is $245 under 28 U.S.C. § 1930(a)(1)(A), (f)(1) plus a $78 administrative fee and a $15 trustee surcharge. Chapter 13 is $235 under 28 U.S.C. § 1930(a)(1)(B) plus the same $78 administrative fee. For the undue hardship route specifically, the DOJ guidance is built around an Attestation Form the assigned DOJ attorney provides to the debtor after the adversary proceeding is commenced, together with the debtor's student loan account history; the attestation is designed to surface the presumption circumstances and advises the debtor to disclose all that apply rather than rely on one (U.S. Bankr. Ct. S.D. Ala., 11/17/22 Guidance; U.S. Bankr. Ct. C.D. Cal., Our Guidelines).

• Petition, schedules of assets, income, liabilities and creditors.
• The Attestation Form, provided by the DOJ attorney after the proceeding starts.
• Your loan account history from the servicer or the Department of Education.

What should you ask a lawyer about your student loans?

Bring the specifics, because the general rule is only the starting point. Useful questions: are all of my loans within the educational category described in 11 U.S.C. § 523, including any benefit overpayments? Does my district have published student loan adversary guidelines or a management program? Do any of the DOJ guidance presumptions apply to my circumstances, and what evidence supports them? Is a partial discharge worth pursuing — the guidance directs department attorneys to consider that possibility. Would Chapter 13 with separate classification address my situation better than litigating dischargeability? What would using a standard repayment amount rather than my income-driven payment mean for how the government assesses my ability to pay? Also ask what the realistic cost and timeline of an adversary proceeding is in your court, since that is a practical constraint the statutes do not describe.

• Which of my debts fall inside the educational category?
• Does my district publish guidelines or run a management program?
• Do any presumptions apply to me, and how would I document them?
• Is a partial discharge, or a Chapter 13 treatment, the better ask?

Frequently asked questions

Can bankruptcy discharge federal student loans?

Not through the ordinary discharge. Court guidance describes student loan debt as nondischargeable unless the debtor files an adversary proceeding against the creditor and proves to the court that not discharging it would be an undue hardship. So the route exists, but it requires a separate lawsuit inside the bankruptcy case and a decision by the judge — it does not happen automatically when your case closes.

Does the government ever agree that undue hardship exists?

Yes, that is one stated goal of the 2022 DOJ guidance: where the facts support it, to increase the number of proceedings in which the Department of Education stipulates to facts showing undue hardship and recommends discharge. The guidance is explicit, though, that the United States' position is not binding on the bankruptcy court, which makes its own determination whether the standard is met.

Is it all or nothing, or can part of the loan be discharged?

The DOJ guidance directs department attorneys to consider the potential for a partial discharge. That means the outcome space is not limited to full discharge or full denial. What a court ultimately does in any individual case is the court's decision, and the guidance is internal Department of Justice policy that, by its own terms, creates no rights enforceable at law.

Can filing bankruptcy stop me getting student aid later?

Federal law addresses this directly. Under 11 U.S.C. § 525, a governmental unit operating a student grant or loan program, and a person in the business of making loans guaranteed or insured under a student loan program, may not deny a grant, loan, loan guarantee, or loan insurance to someone because they are or have been a debtor under the Bankruptcy Code, or because they were insolvent.

Does the automatic stay apply to my student loan servicer?

Filing a petition operates as a stay of most collection activity, including acts to collect a claim that arose before the case began (11 U.S.C. § 362). Local programs can adjust what communication is permitted: under the E.D. Pa. student loan program, once a resolution plan is in place, normal monthly statements about income-driven repayment payments and delinquency notices are not treated as stay violations.

Should I handle a student loan adversary proceeding myself?

That is your decision, and it is worth understanding the shape of it first. Courts describe adversary proceedings as running much like ordinary civil litigation, with discovery, pretrial proceedings and a trial. Bankruptcy court clerks' offices are explicit that they cannot give legal advice. Several districts publish guidelines and deadline-extension procedures specific to these cases, which is a signal of their complexity.

What does it cost to file the underlying bankruptcy case?

The Chapter 7 filing fee is $245, plus a $78 administrative fee and a $15 trustee surcharge. Chapter 13 is $235 plus the same $78 administrative fee. Chapter 13's statutory fee may be paid in installments by an individual commencing a voluntary or joint case; the Chapter 7 waiver is conditional and governed by 28 U.S.C. § 1930(f) and Judiciary procedures. An adversary proceeding is separate from these.

Sources

• 11 U.S.C. § 523 — Exceptions to discharge · official source
• 11 U.S.C. § 525 — Protection against discriminatory treatment · official source
• 11 U.S.C. § 1322 — Contents of plan · official source
• 11 U.S.C. § 362 — Automatic stay · official source
• U.S. Bankr. Ct. S.D. Ala., 11/17/22 Guidance for Dept. of Justice Attorneys Regarding Student Loan Bankruptcy Litigation
• U.S. Bankr. Ct. C.D. Cal., Our Guidelines -- Student Loan Discharge when Dept of Education is a Defendant
• E.D. Pa. LBR 9019-3 — Student Loan Management Program
• U.S. Bankr. Ct. D. Ariz., Choosing Your Chapter: What can Bankruptcy do for you? What will it do to you?
• Bankr. D. Md. official page — Legal Overview
• Bankr. N.D. Iowa official page — FAQs: Debtor
• U.S. Bankr. Ct. C.D. Cal., Order Approving Stipulation to Extend Dates and Deadlines
• 28 U.S.C. § 1930(a)(1)(A), (f)(1)
• 28 U.S.C. § 1930(a)(1)(B)
• Bankruptcy Court Miscellaneous Fee Schedule, Item 8
• Bankruptcy Court Miscellaneous Fee Schedule, Item 9

Related

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• The automatic stay
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