The Short Answer
Bankruptcy almost never wipes out student loans. To discharge student loan debt in bankruptcy, you must prove "undue hardship" — a legal standard so demanding that courts rarely grant it. Undue hardship generally requires showing that repaying the loans would force you into a minimum standard of living, that your situation is unlikely to improve, and that you've made a good-faith effort to repay in the past. It's technically possible, but you should go in knowing it is the rare exception, not the rule.
**UPDATE** – Winds of change are blowing. In early March 2020, Democratic Presidential candidate Joe Biden has agreed that, if elected president, he would allow for student loans to be discharged within a bankruptcy. How this would exaclty look is not known at this time. However, we want to make sure we are providing the most up to date information and wanted you to be aware of this potential change down the road.
While technically you do have the ability to discharge student loans in a bankruptcy, in almost every case the courts do not allow you to discharge your loans. Declaring bankruptcy does clearly show financial hardship, but the federal government will still not allow you to completely discharge your student loan debt. The only way to rid oneself of student loans in a bankruptcy is if the payment of the loans would “cause undue hardship.” While most people would say having to pay high student loan payments when filing bankruptcy is an undue hardship, the federal government has a different opinion of this phrase.
Courts use various tests to determine what is undue hardship but the overall attitude is your specific situation must be so extreme there is no way you could ever pay off the loans. An example would be someone who has extremely high loans such as graduate, medical, or law loans and because of some circumstance they are no longer able to work. This person can likely never pay off their student loans in their lifetime. They must also show they have made a good faith effort to pay off their student loans in the past. The federal government says this normally means you should have been attempting to pay off your loan for at least five years. The idea is that this person has been attempting to pay off their loan in the past, but if they are forced to continue paying off the loan, this will force them into a minimum standard of living or poverty.
Lets look at an example of when student loans might be dischargeable. John Doe went to school to become a surgeon. He completed medical school and his residency and now has close to $550,000 of student loan debt. Although he has a lot of student loans he makes approximately $250,000 a year of income as a brain surgeon. He makes payments each month for a five-year period. Then, one day while out on the lake, John Doe dives into the lake from his boat and he failed to realize the water was shallow. He breaks his neck and becomes a paraplegic. In other words, he is paralyzed from his neck down. At the time of his student loans John Doe owes approximately $300,000. Due to his injury he will never be a surgeon again and is not likely going to find a job that will allow him to pay off his student loans. In this situation, the courts may determine that an extreme circumstance exists allowing for the discharge of student loans.
The courts are hesitant to discharge student loans because while it may be hard to pay your loans now, someday in the future you will be back on your feet and capable of making payments again. Many people believe they qualify for student loan discharge in bankruptcy but it cannot be stressed enough how extremely rare it is that someone is able to discharge their student loan payments in bankruptcy. This is a situation where you have the burden to prove to the court why you should be the exception and why your situation is different. The courts very rarely grant someone a discharge of their student loan debts.
Key Takeaways
- Student loans survive bankruptcy in almost every case — simply struggling to make payments does not meet the legal threshold for discharge.
- To prove undue hardship, you must show repayment causes a below-minimum standard of living, your financial situation won't improve, and you've genuinely tried to repay for at least five years.
- Courts use the undue hardship standard to target truly extreme circumstances — such as a permanently disabling injury that makes it impossible to ever earn enough to repay.
- The burden of proof falls entirely on you — you must file a separate court action called an adversary proceeding to even ask for student loan discharge.
- Graduate, medical, and law school debt can reach hundreds of thousands of dollars, but high loan balances alone don't qualify you — income capacity matters just as much.
- If you have student loans and are considering bankruptcy, talk to an attorney before assuming anything — the law here is strict and the outcome is rarely what people expect.
Attorney Insight
The mistake I see most often is clients coming in convinced their student loans will be wiped out simply because they're broke and can't afford the payments — that's not how the law works. In nearly 30 years of handling bankruptcy cases in North Carolina, I can count on one hand the number of times I've seen a court actually discharge student loan debt. The undue hardship bar isn't just high, it's almost unreachable for anyone who has a realistic chance of earning income in the future. If student loan debt is your primary problem, we need to talk about other strategies — because bankruptcy alone is almost certainly not the answer.
