Can You File Bankruptcy On Student Loans?
Can Student Loans Be Included in a Chapter 7 Bankruptcy Filing? — 2025 Deep-Dive for Borrowers in Michigan and Beyond
Short answer: You will list every student loan when you file Chapter 7, but wiping those balances away still requires an extra lawsuit (an adversary proceeding) and proof of “undue hardship.” Thanks to brand-new Justice Department guidelines, however, success rates are now dramatically higher than they were just a few years ago.
1. Why This Question Matters More Than Ever
With interest on federal loans restarting and new budget rules poised to shrink income-driven repayment subsidies, borrowers are again asking whether bankruptcy can deliver a true fresh start. The answer is no longer the flat “almost never” you may have heard. Recent policy shifts have removed much of the guess-work—and courts are responding.
2. What Chapter 7 Actually Does With Student Loans
When you file Chapter 7 you must schedule all debts, including federal Direct, FFEL, Perkins, and private education loans. Listing those balances stops collection activity during your case, but §523(a)(8) of the Bankruptcy Code automatically excludes student loans from discharge unless you prove undue hardship in a separate adversary proceeding.
3. Federal vs. Private Loans (and Why the Distinction Matters)
When you file Chapter 7, you must schedule every student loan you owe, but the type of loan dictates how hard it is to discharge. Federal loans—Direct, FFEL, and any Perkins loans still held by the Department of Education—are automatically presumed nondischargeable; you’ll need to file an adversary proceeding and meet the “undue hardship” test to wipe them out. Thanks to the streamlined Department of Justice / Education Department guidance rolled out in 2022 and updated through May 2025, however, judges now have a clear framework for agreeing to full or partial discharges, dramatically improving borrowers’ odds.
Perkins loans serviced by private schools follow the same rules but may not benefit from the DOJ guidance unless they’ve been transferred to the Department of Education. Private student loans are also subject to the undue-hardship standard for now, yet Congress is actively debating legislation—most notably the proposed Private Student Loan Bankruptcy Fairness Act of 2025—that would make private education debt dischargeable after ten years even without proving hardship. In short, federal debt is getting easier (though still not automatic) to erase, while private-loan relief could soon improve through congressional action.
4. The “Undue Hardship” Standard—Still Brunner In The Sixth Circuit
Most courts (including those covering Michigan) follow the Brunner test, asking whether:
- You cannot maintain a minimal standard of living if forced to repay?
- Are these circumstances likely to persist?
- Did you make good-faith efforts to repay?
A few jurisdictions apply a “totality of circumstances” test, but Brunner is the framework your Michigan bankruptcy judge will most likely use.
5. Game-Changing DOJ / ED Guidance
In late 2022 the Department of Justice and Department of Education rolled out a standardized attestation form and objective screening criteria. The form was last updated May 2025 and now mirrors IRS Collection Financial Standards, making it simpler to show you lack disposable income.
Latest performance numbers
- 1,220 discharge cases filed between Nov 2022 and Mar 2024—a 36 % jump over the prior period.
- 98 % of decided cases have ended with full or partial relief for borrowers.
Translation: the myth that “student loans can’t be discharged” is quickly becoming outdated.
6. How The New Process Works Step-by-Step
- File Chapter 7 and list every loan on Schedules E/F.
- Initiate an adversary proceeding under §523(a)(8).
- Complete the DOJ Attestation with your attorney. This 15-page form collects income, expense, health, and repayment-history data.
- Government review & stipulation. If you meet the guidance factors, the U.S. Attorney now stipulates to partial or full discharge—no deposition, no discovery.
- Court order. Judges generally adopt the stipulation, making your discharge final.
Because the government joins your request when the factors are met, litigation costs have plummeted, and outcomes have flipped in the borrower’s favor.
7. What Counts As “Undue Hardship” in 2025?
Under the guidance, you are presumed unable to repay if:
- Your expenses already exceed income under IRS benchmarks.
- You’re 65 or older, disabled, have chronic injury, or have been in repayment more than 10 years.
- You have made any good-faith effort—contacting servicers, enrolling in an IDR plan, or even seeking forbearance.
These objective checks were missing under the old purely judicial Brunner analysis.
8. Special Considerations For Michigan Borrowers
Michigan sits in the Sixth Circuit, whose precedent still cites Brunner but now overlays the DOJ framework. Local U.S. Attorney offices have adopted quick-turn protocols; anecdotal reports show turnaround times of four to six months from adversary filing to discharge orders—dramatically shorter than the year-plus pre-2023 timeline.
9. Alternatives If You Cannot Meet The Hardship Factors
- Chapter 13: Lets you force a manageable payment over three to five years and can set the stage for a later hardship motion.
- Income-Driven Repayment (IDR) + “Fresh Start” initiative: Still active through September 2025, credits prior forbearance toward forgiveness clocks.
- Administrative discharges: Total and permanent disability, closed-school, borrower defense, or PSLF.
But if your finances are unlikely to improve, the new DOJ process is often faster and more definitive.
10. Pending Legislation Worth Watching
- Private Student Loan Bankruptcy Fairness Act of 2025 (H.R. 423): Would make private loans automatically dischargeable after ten years. Not yet law.
- Fresh Start Through Bankruptcy Act (re-introduced 2024): Similar ten-year rule for federal loans; still awaiting committee action.
Keep an eye on these bills—the landscape may shift again within the next congressional session.
11. Practical Tips Before Filing
- Document every attempt you have made to repay or manage your loans.
- Project future income realistically—optimistic estimates can sink a hardship claim.
- Gather health records if disability plays a role.
Work with counsel experienced in both bankruptcy and student-loan law; Michigan attorneys now have a clear DOJ checklist to follow.
If student-debt keeps you from a fresh start, the cost-benefit calculus has changed. Reach out to a qualified bankruptcy attorney to see whether the new framework can finally put your student loans behind you.