Can you break down federal petition for student loan discharges

A federal student-loan discharge generally occurs through a bankruptcy case followed by a separate adversary proceeding asking the bankruptcy court to determine that repayment would impose an “undue hardship.” Filing bankruptcy alone does not automatically discharge qualifying student loans.[1]

1. File a bankruptcy petition

The debtor files a petition under Chapter 7 or Chapter 13. Student loans are generally excepted from discharge unless the debtor proves undue hardship under 11 U.S.C. § 523(a)(8).[1]

Section 523(a)(8) covers, among other debts:

• Government-issued, guaranteed, or funded educational loans;
• Certain educational-benefit overpayments;
• Qualified private education loans.

2. Commence an adversary proceeding

The debtor must file an adversary complaint in the bankruptcy case seeking a determination that the student-loan debt is dischargeable. The adversary proceeding is the litigation vehicle—not the bankruptcy petition itself.

The Department of Justice explains that these cases are handled by the U.S. Attorney’s Office for the district where the bankruptcy is pending.[2]

3. Apply the Fifth Circuit’s undue-hardship test

The Fifth Circuit follows the three-part Brunner test. In re Gerhardt, 348 F.3d 89, 91–92 (5th Cir. 2003). The debtor must establish all three elements:

The Fifth Circuit describes the second prong as demanding. Current financial difficulty alone is insufficient; the debtor generally must show a future inability to repay for reasons beyond the debtor’s control.[3]

4. Provide financial and hardship evidence

Typical evidence includes:

• Income, expenses, assets, and liabilities;
• Medical or disability documentation;
• Employment history and earning capacity;
• Dependents and caregiving obligations;
• Attempts to obtain employment or increase income;
• Payment history;
• Applications for deferment, forbearance, or income-driven repayment;
• Whether an income-driven plan would impose an unaffordable payment.

The debtor retains the burden of proving undue hardship. DOJ guidance may assist the parties’ evaluation, but it does not alter that burden.[4]

5. DOJ/Department of Education review

For federal loans, DOJ counsel may provide the debtor with:

• A standardized attestation form;
• The Department of Education’s loan account history;
• An opportunity to submit financial and hardship information.

DOJ guidance directs government attorneys to evaluate the borrower’s circumstances under the applicable undue-hardship test and, where supported, recommend discharge.[5]

The government may:

1. Agree that a full discharge is appropriate;
2. Recommend a partial discharge, where permitted by governing law;
3. Consent to stipulated facts while leaving the legal determination to the court; or
4. Litigate against discharge.

6. Court judgment

The bankruptcy court ultimately determines dischargeability. A favorable judgment may:

• Discharge the entire loan;
• Discharge only part of the debt, if legally permissible and supported by the order; or
• Deny discharge, leaving the loan enforceable.

The statutory text does not expressly address partial discharge, and the availability and form of partial relief may depend on the applicable case law and the proposed judgment.[6]

Practical point: The strongest cases ordinarily combine a present inability to pay, objective evidence that the hardship will persist, and documented efforts to address or repay the loans.

Important distinction

This process is different from administrative federal-loan relief, such as:

• Total and permanent disability discharge;
• Closed-school discharge;
• Borrower-defense discharge;
• Public Service Loan Forgiveness;
• Income-driven repayment forgiveness.

Those programs are generally pursued through the Department of Education rather than through a bankruptcy adversary proceeding.