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Choosing Between Chapter 7 and 13 if You Have Student Loans

Discharging—legally writing off—student loans is quite difficult under either Chapter 7 “straight bankruptcy” or Chapter 13 “adjustment of debts.” The pertinent law, Section 523(a)(8) of the United States Bankruptcy Code, says is that a student loan is not discharged unless it “would impose an undue hardship on the debtor and the debtor’s dependents.”

“Undue Hardship”

Congress did not define what it meant by “hardship” in this language. Nor did it say what it would take to be an “undue” hardship. But this language does clearly say that you cannot discharge a student loan even if it is causing you a hardship. It has to be causing you some kind of more-than-normal, excessive hardship.

Three-Part Test

Because of this ambiguity in the law, bankruptcy courts all over the country have struggled for decades to determine whether an “undue hardship” exists in any particular situation. Different courts have come up with somewhat different interpretations, but generally you have to meet three conditions:

  1. If you were required to repay the student loan under your current income and expenses, you would not be able to maintain even a minimal standard of living.
  2. This inability to maintain a minimal standard of living upon paying the student loan is expected to continue during all or most of the loan repayment period.
  3. You’ve made a meaningful effort repay the student loan, or to qualify for appropriate forbearances, consolidations, and administrative payment-reduction programs.

You have to meet all three of these conditions to discharge a student loan in bankruptcy.

Chapter 7 vs. 13

This tough three-part test applies just the same whether you file a Chapter 7 or Chapter 13 case. So why does it matter which you file?

It comes down to some practicalities that could be very important in your situation.

  1. Be aware that unlike certain kinds of debts in which the burden is on the creditor to challenge the discharge of the debt, with a student loan the burden is on you, the borrower, to establish “undue hardship” during the bankruptcy case. Otherwise the debt survives your bankruptcy.
  2. During a bankruptcy case the “automatic stay” generally prevents a creditor from taking any action to collect the debt. This applies to student loans as well, whether under Chapter 7 or Chapter 13. The former usually takes less than four months to complete, meaning that the protection from the student loan creditor(s) lasts only that long. However, a Chapter 13 case lasts usually three to five years. Even if you do not make any payments on your student loan(s) during that time, the creditor(s) cannot pursue you.
  3. You may not qualify under “undue hardship” at the time you file bankruptcy. But you may qualify later, so this consideration can affect whether you should file under Chapter 7 or 13. Generally you can reopen your closed case later to get a determination of “undue hardship.” So if you have no expectation that would qualify at any particular point in the future, Chapter 7 may make more sense. But if you do expect to qualify for an “undue hardship” within three, four years or so, based on a worsening medical condition or an anticipated reduction in income, for example, then Chapter 13 may well be better for you. It may allow you to avoid making any ongoing student loan payments for the next few years while you focus on other more pressing obligations—such as curing a mortgage or vehicle loan arrearage, or paying back income taxes or support obligation. Then you could ask for the hardship discharge towards the end of your case when your circumstances are ripe for it.


Even though bankruptcy law does not provide an easy way to discharge most student loans, for more and more people their student loans are a major part of their financial distress. Because student loans are challenging to deal with, that’s all the more reason to get good legal advice to determine your best way forward.

If you live in New Jersey, the Law Office of Andrew B. Finberg can help by providing you a free consultation with you about your student loan(s) and the rest of your financial situation. We will advise you about your options, and formulate a game plan with you to meet your goals. Please call us at (856) 988-9055. Or use this form. We look forward to serving you.

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