Student Loans Before, During and After Bankruptcy

Student loan balances are a growing problem and forcing many to turn to personal bankruptcy as an option. However, it’s important to understand that in most cases, student loan balances will not be forgiven in bankruptcy.

Student loan debt has become a major burden for many Americans and those with high balances may consider bankruptcy as a way to resolve those debts. The following outlines what happens to borrowers and their loans before, during, and after the process.

Of course, the easiest way to avoid this situation is to responsibly and carefully take on student loan debt to begin with. By working with your lender or institution, there may be deferral or other options to not take on significant balances to obtain your desired degree. Only take on debt for tuition as opposed to debt to cover all living expenses, for example.

During Bankruptcy: Undue Hardship

If you’ve declared Chapter 7 or 13 bankruptcy and can show that repayment of the student loan would cause you an “undue hardship,” the court could discharge your student loans. The process for determining whether your student loans are dischargeable is known as an “adversary proceeding.”

The courts will consider if repayment would render you unable to have a “minimal standard of living,” offer continued hardship throughout the repayment period, and prior good faith efforts to repay prior to the bankruptcy. The court could decide a number of options for you ranging from partial discharge to new loan terms (like a lower interest rate). The court considers whether you have taken advantage of any available programs such as income-based repayment, income-contingent repayment, or other similar student loan repayment or forgiveness programs when determining whether you have made good faith efforts towards repayment; for example, sometimes, the monthly repayment required as part of an income-based repayment program is $0.00, and if you qualify for such a payment, you should take advantage of it.

What bankruptcy can provide is a way for you to manage your other debt so that when you leave bankruptcy, you have only some long-term secured debt remaining (for example, a home mortgage) as well as your student loans, instead of your other unsecured debts as well (credit cards, medical bills, lawsuits, etc.).

How Bankruptcy Affects Your Ability to Qualify for Student Loans

Unless you’re specifically applying for a Parent PLUS loan (where the parent is the primary borrower and other specific allocations apply), the government will not consider prior bankruptcies when determining borrower viability.

With PLUS loans, if you have an “adverse credit history” consisting of any of the following, then you likely will not qualify:

  • A bankruptcy discharge, foreclosure, deed in lieu of foreclosure, wage garnishment, repossession, or tax lien in the last five years.
  • Foreclosure proceedings
  • Delinquent accounts of more than 90 days
  • Charge-offs or write-offs of federal student loans
  • Loan defaults (even if they were paid off at a later date)


Natural State Law is a trusted and compassionate source for Arkansas residents working through their options and processing the issues associated with large student loan balances. Our experienced team will stick with you through the most overwhelming parts of the process and help advise on a plan for rebuilding credit and your financial reputation. Call (501) 916-2878 to learn more and schedule a free consultation.