You may have your federal student loan discharged in bankruptcy only if you file a separate action, known as an "adversary proceeding," requesting the bankruptcy court find that repayment would impose undue hardship on you and your dependents.
What circumstances do I need to prove to have my loan discharged in bankruptcy?
How do bankruptcy courts determine undue hardship?
What happens to my loan if the bankruptcy court determines repayment would cause undue hardship?
What can I do if the bankruptcy court doesn’t discharge my loans but I can’t afford the payments?
You must declare Chapter 7 or Chapter 13 bankruptcy and demonstrate that repayment would impose undue hardship on you and your dependents. This must be decided in an adversary proceeding in bankruptcy court. Your creditors may be present to challenge the request.
The bankruptcy courts do not use a single test to determine undue hardship but may look at the following factors to determine whether requiring you to repay your loans would cause an undue hardship:
- If you are forced to repay the loan, you would not be able to maintain a minimal standard of living.
- There is evidence that this hardship will continue for a significant portion of the loan repayment period.
- You made good faith efforts to repay the loan before filing bankruptcy.
It depends on the terms of the bankruptcy court’s determination. The terms may include the following:
- Your loan may be fully discharged, and you will not have to repay any portion of your loan. All collection activity will stop.
- Your loan may be partially discharged, and you will still be required to repay some portion of your loan.
- You may be required to repay your loan, but with different terms, such as a lower interest rate.
Many different repayment plans exist, and switching to a plan that’s a better fit is usually a possibility. Contact your loan servicer if you would like to discuss repayment plan options or change your repayment plan. You can get information about all of the federal student loans you have received and find the loan servicer for your loans by logging in to My Federal Student Aid.