Q1. Can student loans be discharged in bankruptcy?
While student loans are still harder to discharge than credit cards or medical bills, there is now a new, nationwide process that is working for many borrowers with federal student loans.
Q2. What’s the new process for evaluating student loan discharge?
In late 2022, the Department of Justice and the Department of Education created a standardized process and form for evaluating student loan discharges. Government lawyers are now instructed to agree to full or partial discharge when the borrower clearly can’t afford to pay and has acted in good faith.
Q3. Does this apply to all student loans?
The new process mainly covers federal student loans (Direct Loans and certain others held by the government). Private student loans are handled separately and may still be dischargeable in some cases, but the rules are different and more case-specific.
Q4. How do courts decide if I qualify?
They look at whether repaying your loans would cause “undue hardship.” Under the new process, that means carefully reviewing:
- Your income and reasonable living expenses
- Your long-term prospects (age, health, employment history)
- Your good-faith efforts over time (working, paying when able, communicating, etc.)
There are built-in presumptions in your favor if you’re older, have long-term health issues, have been trying to repay for many years, or never finished the degree.
Q5. Do I have to file for bankruptcy to use this process?
Yes. You either:
- File a Chapter 7 or Chapter 13 bankruptcy, or
- Reopen a prior bankruptcy case (if appropriate),
and then file a separate lawsuit within the case, asking the court to discharge your student loans. That lawsuit is called an adversary proceeding.
Q6. Is the discharged amount taxable?
In most cases, no at the federal level. Debt canceled in a bankruptcy case is generally excluded from federal taxable income, which is a big advantage compared to some other forms of loan forgiveness. Because our firm works with both bankruptcy and tax law, we review the tax angle for you before you file your bankruptcy.
Q7. Is this right for everyone with student loans?
No. Bankruptcy is serious and affects your whole financial profile, not just your loans. If you’re asking yourself, Can student loans be discharged in bankruptcy? Start by considering if this is the right path for you. It may be worth exploring if:
- You’re overwhelmed by student loans plus other debts, and
- Your income and circumstances make repayment realistically impossible.
Q8. How can Thinking Outside the Box Law, Inc. help?
We:
- Review your student loans, other debts, income, and assets
- Explain how the new student loan discharge process works in your situation
- Handle the bankruptcy filing and the student loan adversary filing
- Use our tax law knowledge to help you avoid surprise tax problems later
You don’t have to navigate this alone—we’ll help you see whether this “new door” in bankruptcy might finally lead to a real fresh start.
If you’re in or around Naperville / DuPage County and want to explore these new options, contact Thinking Outside the Box Law, Inc. to schedule a consultation.