In addition to concerns of physical safety, the Covid-19 pandemic has also created economic uncertainty for many. Michigan’s rate of underemployment (including unemployment and those only employed part-time for economic reasons) was almost two percent higher than the national rate. For these individuals, as well as others who may live paycheck to paycheck, it can be difficult to pay the bills each month.

One major source of stress can be student loans. After mortgages, student loans are the second largest form of consumer debt. When funds are already stretched at the end of the month, this additional expense can put them over the edge. The only relief in sight may be filing for bankruptcy. Many wonder, can you file for bankruptcy on student loans? The short answer is: sometimes.

Types of Student Loans

There are many types of student loans. Some are federal loans or federally backed loans, for which the debtor has borrowed money directly from the government. Other loans, however, come from private individuals or institutions. The type of loan you have may affect its inclusion in the bankruptcy process.

The Types of Student Loans that Cannot be Discharged in Bankruptcy

Student loans cannot be discharged if they meet any of the following three criteria:

  • They are backed by or issued from the government
  • The funds were received as an educational benefit, scholarship, or stipend
  • They are private loans where the student attended an eligible institution and the loan funded only educational expenses

Based on these criteria, more often than not, student loans are not automatically eligible to be discharged during bankruptcy. If a loan does not qualify for discharge under the above standard, you can still discharge student loans if you can prove that the loans constitute an undue hardship. This process, however, is incredibly difficult and requires the debtor to satisfy a three-part test (known as the Brunner Test).

The Brunner Test for Undue Hardship

The three-part Brunner Test is as follows:

First, you must provide proof of your income and expenses to demonstrate that you are unable to maintain even a minimum standard of living.

Second, you must prove that this financial situation is likely to continue for a significant amount of time in the future.

Third, you must prove that you have, up until that point, made a “good faith effort” to repay the student loan. What constitutes a good faith effort is not explicitly defined, and therefore it is left up to interpretation by the court. Though some courts are more flexible and lenient with this provision, others have cited that filing a claim of undue hardship in and of itself demonstrates a lack of a good faith effort to repay.

Although student loan debt can be discharged during bankruptcy proceedings, it is often very difficult to accomplish.

The FRESH START Through Bankruptcy Act of 2021

Might there be a light at the end of the tunnel? On August 3, 2021, a United States Senate Judiciary Committee held a hearing to address the issue of student loan debt and bankruptcy. At this hearing, Senator Dick Durbin (a Democrat from Illinois and chair of the Judiciary Committee) and Senator John Cornyn (a Republican from Texas), co-sponsored a bill to reform the current bankruptcy law with regard to student loan debt.

Their effort, known as the “FRESH START Through Bankruptcy Act of 2021,” proposes that federal student loan debt be permitted to be discharged during bankruptcy proceedings beginning ten years after the first student loan payment is due. It also holds Institutions of Higher Education accountable, requiring that colleges partially refund the government if a student’s loans are discharged later through bankruptcy. As the changes would apply only to federal student loans, the bill maintains the undue hardship clause for private loans.

At this time, no further action has been taken. It will be interesting to watch the progress of the FRESH START Act over the coming weeks and months.

Should I Try to Discharge My Student Loans Through Bankruptcy?

To determine whether you should try to discharge your student loans through bankruptcy, the best course of action is to talk to an experienced bankruptcy attorney. He will be up to date on the latest legal developments and can advise if your case is likely to meet the many complicated criteria. Even if your student loan debt is not discharged through bankruptcy, the proceedings may help to lessen or delay your student loan payments.

You can schedule a consultation with attorney Joshua Reinert by calling (989) 799-8860 or filling out our online contact form.

Joshua Reinert is a highly qualified attorney with a well-trained and experienced staff who will give you personalized service and the debt relief you seek. Reinert & Reinert serves Alcona, Alpena, Arenac, Bay, Cheboygan, Clare, Crawford, Gladwin, Gratiot, Huron, Iosco, Isabella, Midland, Montmorency, Ogemaw, Oscoda, Otsego, Presque Isle, Roscommon, Saginaw and Tuscola Counties.


Contact us today for your free consultation and to find out why 13,000 families and businesses have trusted Reinert & Reinert to assist them with their finances during tough times.