Student loan debt is a big financial problem for a lot of people in the United States. As college costs keep going up, more and more people are turning to student loans to pay for their education. These loans can be hard to pay back because the interest rates are high and the terms are long.

Some people might think that filing for bankruptcy is a good way to get out from under this debt. But before you decide whether or not to do so, it’s important to know how the process works and what choices you have.

In this article, we’ll talk about everything you need to know about declaring bankruptcy on student loans in the U.S., including what you need to do to be eligible, what could happen if you declare bankruptcy, what other options you have before taking such a drastic step, and much more.

Let’s get started!

First, what is Bankruptcy?

Bankruptcy is a legal process that lets people or businesses who can’t pay back their debts in full or at all get rid of those debts by getting a “discharge order” from the court. Most unsecured debts, like credit card bills or medical bills, are basically wiped out by this order. However, secured debts, like mortgages or car payments, must still be paid according to the original agreement between the debtor and creditor (s). Also, you can’t get rid of some types of government-backed debt, like taxes you owe or missed child support payments, through bankruptcy.

Under U.S. bankruptcy law, however, getting rid of student loans is much harder than getting rid of other types of unsecured debt. This is done through an adversary proceeding. Still, there are times when a person can get out of their student loan obligations by filing for Chapter 7 or Chapter 13 bankruptcy.

How Student Loan Bankruptcy Works?

If you are thinking about filing for bankruptcy on your student loans, falling behind on your payments will have a big effect on your life. The federal government can keep your tax refund and use it to pay off your federal student loans if you are behind on payments or in default. This can hurt your credit score and other finances.

Student debt is likely not the only problem you’re having with your money. If you only have student debt, you probably won’t be able to get rid of it through bankruptcy. Filing for bankruptcy on your student loans isn’t easy, and it doesn’t mean that you won’t have any more debt. But if you have bad credit, bankruptcy could get you back on your feet faster than trying to pay off your debts.

Student loans do not have their own type of bankruptcy. To get student loans forgiven through bankruptcy, you must file either Chapter 7 or Chapter 13. Then, you’ll need to take one more step, which is to file an AP or adversary proceeding. 

What Should You Know Before You File for Bankruptcy on Your Student Loans?

It should go without saying that filing for personal bankruptcy should only be done as a last resort, after all other options have been tried and failed. This is especially true when it comes to federally backed student loan programs, because not paying back these loans could lead to serious problems down the road, like having your wages garnished or not being able to get any more government help in the future, etc.

So, before deciding if declaring personal bankruptcy is the best way to move forward, borrowers should first look into deferment/forbearance options offered directly by lenders as well as income-driven repayment plans offered by the Department of Education itself. These options, among others, might help relieve the burdensome monthly payment schedules that are currently put on them instead of going the route that could hurt their credit scores even more in the future.

How to File Student Loan Bankruptcy?

You must file for Chapter 7 or Chapter 13 bankruptcy before you can ask a judge to get rid of your student loans. To do this, you have to fill out a lot of paperwork and list your assets, income, debts, and expenses. The bankruptcy court will send an impartial trustee to meet with your creditors to confirm your debts. Before you can go to court, you must also go through credit counseling.

When people fall behind on their bills, filing for bankruptcy can help them catch up by stopping collection efforts and stopping the downward spiral of debt. When you file for bankruptcy, debt collectors have to stop their actions until the court gives them permission to start collecting again or until your case is over.

Are there Adversary Proceedings Involved?

As we’ve already said, starting an adversary proceeding against creditors in order to get out of paying back student loans means showing that paying back the money has been too hard so far and that there are no reasonable hopes of being able to do the same in the near future, given the current state of the economy, etc.

Also, unlike regular consumer bankruptcies filed under Chapters 7 and 13, wherein filers usually get automatic stays stopping creditors from collecting money owed right away, successful completion of adversary proceedings does not automatically guarantee immediate relief, since the judge presiding over the case decides whether to grant requested discharges based on the merits presented to him or her during the hearing itself.

It’s also important to note that the IRS has the right to keep tax refunds that are applied to delinquent federal loan accounts whenever it thinks it’s necessary. This is regardless of the outcome of any hearings held to decide whether or not the loans can be forgiven. It means that even if requests are granted, people may still end up owing a lot of money depending on how bad the delinquency problem was in each case.

Last but not least, those who are found guilty of willfully trying to defraud the system in order to get an undeserved discharge are punished. It’s good to know that fraud is rare in general these days because people are more aware of their rights and responsibilities when it comes to borrowing money for higher education than they were in the past.

Final Thoughts

All in all, after reading the article above, readers should have a better idea of the pros and cons of declaring personal bankruptcy for educational financing programs. While it is true that sometimes it is necessary to move forward, it also comes with a lot of risks and benefits. It is important to weigh teverything carefully before making a decision.


1) Can I put my federal student loans into bankruptcy?

Yes, it is possible for people with large federal, private, or parent PLUS loan balances to file Chapter 7 or Chapter 13 bankruptcies in the hopes of having those debts completely wiped out. However, doing so requires an extra step called “adversary proceedings,” which involves proving that repaying the money borrowed over time has caused undue hardship without any reasonable hope of relief.

2) If I don’t pay back my federal student loans, what will happen?

If you don’t pay on time for your federally backed educational financing program account(s), the IRS can keep your tax refund and put it toward any past-due balances. They can also garnish your wages and take money out of your Social Security checks until the whole amount is paid off to everyone’s satisfaction.

3) Are there options other than filing for bankruptcy?

Yes. Before deciding if declaring personal bankruptcy is the best way to move forward, borrowers should first look into deferment/forbearance options offered directly by lenders as well as income-driven repayment plans offered by the Department of Education itself. These options, among other things, could help relieve the heavy monthly payment schedules they are currently stuck with instead of taking a route that could hurt their credit scores even more in the future.


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