Treatment of Student Loans in Bankruptcy

March 11, 2012 by  Filed under: Bankruptcy 

Student loans receive special treatment in bankruptcy. They are unsecured loans, similar to credit cards, medical bills, and payday loans, which means they are not attached to collateral by a lien. However, unlike these other types of debts they generally cannot be discharged in bankruptcy.

In Chapter 7 bankruptcy cases student loans are put into forbearance until the debtor receives a discharge. These types of cases last about three and a half to four months, so the debtor receives a short reprieve from having to make payments during this time. Once the case is completed the creditor may begin collection of the debt.

In Chapter 13 bankruptcy cases the debtor may or may not be required to make payments to these creditors, depending on their monthly disposable income. In these types of cases the unsecured creditors get paid some or all of their claims depending on the amount of money available to pay them in the reorganization plan and the total amount of unsecured claims that are filed. If there is money available to pay unsecured creditors, the student loans get paid as well. If there is no money for this group of creditors then the student loans go into forbearance for the three to five years the debtor is in bankruptcy.

Under very rare circumstances, student loans may be discharged in bankruptcy. Discharging these types of debts requires a lawsuit within the bankruptcy court called an adversary proceeding. The test for whether or not the debtor will be successful in discharging the debt is different depending on the state in which the case is filed. One common test that many states follow is referred to as the Brunner test. The Brunner test requires that the petitioner prove that he cannot maintain a minimal standard of living for himself or his dependents, the difficulties preventing the debtor from repaying the student loans are likely to continue for a significant portion of the scheduled period of repayment, and the debtor made a good faith effort to repay the debt before seeking a discharge. This is a very difficult test to meet and very few bankruptcy filers succeed in discharging student loans.

Nathan S. Graham is an attorney with The Wright Firm, LLP. Nathan represents individuals and small businesses in Chapter 7 and Chapter 13 bankruptcy cases. The Wright Firm, LLP, has offices in Dallas, Denton, Lewisville, and Frisco.

For more information about Nathan Graham visit the Wright Firm’s web site at or read Nathan’s blog at

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