Overview

Private student loans are treated differently in bankruptcy than most other unsecured debts. Under federal bankruptcy law (11 U.S.C. §523(a)(8)), student loans—federal and private—are generally not dischargeable unless the borrower can show “undue hardship.” That creates a high evidentiary bar: successful discharge of private student loans is possible, but it is uncommon and depends on your facts, the judge, and the legal test your jurisdiction uses (see 11 U.S.C. §523(a)(8); U.S. Department of Education guidance).

This article explains the legal standards, practical evidence courts expect, the adversary proceeding process, alternatives to full discharge, and realistic next steps. It draws on current federal law, consumer guidance, and practical negotiation strategies. It is educational only—not legal advice. Consult a bankruptcy attorney for case-specific counsel.

Sources: 11 U.S.C. §523(a)(8); Consumer Financial Protection Bureau (CFPB) guidance on student loans and bankruptcy; National Association of Consumer Bankruptcy Attorneys (NACBA).

Why private student loans are harder to discharge

Bankruptcy law carved out student loans from routine discharge because Congress intended to protect education lending. Section 523(a)(8) places the burden on the borrower to prove undue hardship. Most bankruptcy judges apply one of two approaches:

  • The Brunner test (majority of courts): borrower must show (1) inability to maintain a minimal standard of living if forced to repay, (2) that the financial situation is likely to persist for a significant portion of the repayment period, and (3) good-faith efforts to repay the loans. Many courts use this three-prong test. (See Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987)).
  • The totality-of-circumstances test: used by some circuits, it looks at all facts and circumstances rather than a strict three-prong test. Either way, the standard is demanding.

CFPB explains the general rule that student loans are not automatically dischargeable and that borrowers must pursue an “adversary proceeding” to ask the court for relief (Consumer Financial Protection Bureau).

How the process works in practice

  1. File bankruptcy (Chapter 7 or Chapter 13).
  2. To challenge private student loan nondischargeability you must start an adversary proceeding—a separate lawsuit inside bankruptcy court—usually within the deadlines set by the court rules (Federal Rules of Bankruptcy Procedure, Rule 4007).
  3. The lender (or loan holder) is served and can defend. Discovery, depositions, and a trial may follow.
  4. You must submit evidence: budgets, tax returns, medical records, proof of disability or unemployment, job search records, and anything showing long-term inability to repay.
  5. Judge applies the applicable test (Brunner or totality) and issues a ruling. If you win, the court issues a judgment discharging the debt; if you lose, the loan survives bankruptcy.

Timing: an adversary proceeding can extend the bankruptcy process and add legal costs. Many borrowers settle with lenders before trial.

Realistic outcomes and likelihoods

  • Successful full discharge: possible but statistically rare. Success is more likely when a borrower can show permanent disability, catastrophic illness, or no realistic prospect of repayment for the foreseeable future.
  • Partial relief or settlement: more common. Lenders may accept a reduced payoff or modified terms to avoid litigation costs.
  • No discharge: many courts deny undue hardship claims, leaving the borrower responsible; co-signers often remain liable unless separately litigated or released.

In practice, many of the private-loan outcomes I’ve seen in client work involved negotiated settlements or hardship accommodations rather than a judicial discharge.

Evidence that strengthens an undue-hardship claim

Courts want a clear, document-backed picture of your finances and prognosis. Strong evidence includes:

  • Detailed monthly budget and supporting receipts
  • Pay stubs, unemployment records, and tax returns (3–5 years if available)
  • Medical records, disability evaluations, or Social Security award letters if health is at issue
  • Job search logs, re-training efforts, and documentation of barriers to employment
  • Evidence of attempted repayment or contact with the servicer (showing good faith)
  • Expert testimony (vocational experts, medical professionals) in some cases

Keep thorough records. As with the client examples above, preparedness and documentation materially affect negotiating leverage and court credibility.

Practical alternatives and strategies (realistic, case-proven)

  • Negotiate a settlement: lenders often prefer a lump-sum for less than full balance. Settlements are confidential and can be faster than litigation.
  • Seek a loan modification with your servicer: some private lenders grant temporary relief, interest reductions, or forbearance.
  • Pursue a hardship discharge for total and permanent disability (if available under your loan agreement)—this is more common with federal loans but some private contracts include disability provisions.
  • Consider co-signer negotiations: if you have a co-signer, they are typically still on the hook. Negotiate release or settlement with the lender rather than relying on bankruptcy to remove their liability.
  • Explore refinancing or consolidation only after understanding how creditor claims and dischargeability will be affected; refinancing during bankruptcy is generally not available.

If you want an overview of how bankruptcy interacts with student loan discharge (both private and federal), see our guide: “Bankruptcy and Student Loan Discharge: What’s Possible?” (https://finhelp.io/glossary/bankruptcy-and-student-loan-discharge-whats-possible/).

For a comparison between private and federal options during bankruptcy, read: “Private vs Federal Student Loan Discharge Options During Bankruptcy” (https://finhelp.io/glossary/private-vs-federal-student-loan-discharge-options-during-bankruptcy/).

Chapter 7 vs Chapter 13—does the chapter matter?

  • Chapter 7: Liquidation bankruptcy can eliminate unsecured balances, but not automatically student loans. You still must file an adversary proceeding to ask the court to discharge student loan debt.
  • Chapter 13: A reorganization plan spreads repayments over 3–5 years. In Chapter 13, a judge can modify the treatment of unsecured obligations; sometimes borrowers use this structure to reduce payments and then seek undue-hardship relief later.

Which chapter is right depends on income, assets, and goals. An attorney can map a strategy that aligns bankruptcy choice with any plan to challenge student loans.

Costs and timelines

Challenging a student loan’s dischargeability can be expensive—court filing fees, attorney fees for adversary proceedings, and expert witness fees. Many borrowers choose settlement because it reduces time and legal expense. Expect an adversary proceeding to add several months to a year or more to the bankruptcy timeline.

Tax implications

If a lender forgives or settles a private student loan, the canceled amount may be taxable as cancellation of debt income. There are exceptions (bankruptcy discharge itself typically prevents COD income for most debts discharged in bankruptcy), but settlement vs. discharge has different tax consequences. Consult a tax advisor. See IRS guidance on canceled debt and bankruptcy exclusions (IRS Form 982 and related publications).

What to gather now (document checklist)

  • 2–3 years of tax returns and recent pay stubs
  • Detailed monthly expense worksheet (housing, utilities, food, medical, transportation)
  • Medical records and disability documentation, if applicable
  • Proof of job searches, unemployment claims, or periods of underemployment
  • Correspondence with lenders/servicers and records of payments or attempts to pay
  • Any loan promissory notes, loan agreements, and co-signer information

Collecting these documents early strengthens negotiation positions and prepares you if you pursue an adversary proceeding.

Common mistakes to avoid

  • Assuming bankruptcy will automatically remove private student loans
  • Failing to start an adversary proceeding before the deadline
  • Overlooking the legal and tax costs of settlement versus discharge
  • Ignoring co-signer exposure—co-signers are often still liable unless separately addressed
  • Trying to navigate this without an attorney experienced in bankruptcy and student loan law

Frequently asked questions (brief)

  • Can private student loans be discharged in bankruptcy? Yes, but only if the court finds “undue hardship”—a difficult standard.
  • Do I need an adversary proceeding? Yes, most courts require a separate adversary proceeding to decide dischargeability.
  • Will a co-signer be protected? Usually not automatically. Co-signers often remain liable unless the lender agrees otherwise.
  • Is a settlement taxable? Possibly—canceled debt can be taxable unless excluded by bankruptcy or other IRS rules. Consult a tax professional.

Next steps and recommended actions

  1. Consult a bankruptcy attorney who has handled student loan adversary proceedings. In my experience, attorneys who specialize in student-loan disputes provide better strategic options than general bankruptcy counsel.
  2. Assemble the document checklist above to support either negotiation or court filings.
  3. Contact your servicer to learn about hardship options and request written confirmation of any offers.
  4. Consider mediation or settlement early—it’s often the fastest route to real relief.

Disclaimer

This article is educational and reflects general information as of 2025. It is not legal or tax advice. For personalized guidance, consult a qualified bankruptcy attorney and a tax advisor.

Authoritative resources

Further reading on this site:

If you want, I can outline a sample adversary proceeding checklist or draft questions to ask a bankruptcy attorney before hiring one.