Is student loan debt now dischargeable in bankruptcy?
Student loan debt is not automatically dischargeable in bankruptcy. It may be discharged, in whole or in part, if the debtor proves that excluding it from discharge would impose an “undue hardship” on the debtor and the debtor’s dependents. 11 U.S.C. § 523(a)(8)[6]
How Discharge Works
The debtor must file an adversary proceeding seeking a determination of dischargeability. The governing legal test depends on the circuit:
| Jurisdictional approach | Required showing |
|---|---|
| Brunner test | Inability to maintain a minimal standard of living; circumstances indicating that inability will persist; and good-faith efforts to repay. Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395, 396 (2d Cir. 1987)[4] |
| Totality-of-the-circumstances test | Consideration of past, present, and reasonably reliable future resources; reasonable necessary expenses; and all other relevant circumstances. Long v. Educ. Credit Mgmt. Corp. (In re Long), 322 F.3d 549, 554–55 (8th Cir. 2003)[5] |
For example, the Ninth Circuit applies Brunner. United Student Aid Funds, Inc. v. Pena (In re Pena), 155 F.3d 1108, 1112 (9th Cir. 1998)[3] The Eighth Circuit applies the totality-of-the-circumstances test. Long v. Educ. Credit Mgmt. Corp. (In re Long), 322 F.3d 549, 554–55 (8th Cir. 2003)[5]
Effect of the DOJ Guidance
The Department of Justice’s November 2022 guidance did not change the law. It established a process for DOJ attorneys, working with the Department of Education, to evaluate eligible federal student-loan cases and potentially recommend a full or partial discharge where the facts support undue hardship.DOJ Student Loan Discharge Guidance[1]
The government’s recommendation or stipulation does not bind the bankruptcy court; the court makes the ultimate dischargeability determination.Guidelines for Adversary Proceedings under 11 U.S.C. § 523(a)(8)[2] The guidance generally applies only to loans held by the Department of Education, not necessarily private loans or loans held by other entities.Guidelines for Adversary Proceedings under 11 U.S.C. § 523(a)(8)[2]
Bottom line: Bankruptcy can discharge qualifying student-loan debt, but only after a fact-specific undue-hardship determination. The 2022 DOJ process may make qualifying federal-loan cases easier to resolve, but it did not create an automatic discharge or eliminate the debtor’s burden of proof.DOJ Student Loan Discharge Guidance[1]
Sources & References
- Guidance for Department Attorneys Regarding Student Loan Bankruptcy Litigation
- Guidelines for Adversary Proceedings under 11 U.S.C. § 523(a)(8) in which the United States is a Defendant
- In re Pena, 155 F.3d 1108 (9th Cir. 1998)
- Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987)
- Long v. Educ. Credit Mgmt. Corp. (In re Long), 322 F.3d 549 (8th Cir. 2003)
- 11 U.S.C. § 523(a)(8)