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Millions of Americans are carrying student loan debt that feels impossible to escape. Student loans can sometimes be discharged in bankruptcy if the borrower proves undue hardship. In 2022, the DOJ and Department of Education created a more standardized process that has made the review more predictable, and that process remains highly relevant today.
If you have been told that student loans are simply not dischargeable in bankruptcy, that is no longer the full picture.
Can Student Loans Be Discharged in Bankruptcy?
Yes. Student loans can be discharged in bankruptcy, but borrowers must meet specific legal standards that courts use to evaluate hardship.
For decades, discharging student loans in bankruptcy required proving what courts call “undue hardship,” a standard that most judges applied so strictly that few borrowers ever succeeded. The primary test used in Tennessee and most of the Sixth Circuit has been the Brunner test. Under Brunner, a borrower must show three things:
- They cannot maintain a minimal standard of living while repaying the loan.
- Their financial situation is likely to persist for a significant portion of the repayment period.
- They have made good-faith efforts to repay the debt.
That third prong, good-faith effort, is where many Chattanooga borrowers ran into problems. Courts often penalized people for failing to enroll in income-driven repayment plans, even when those plans were unaffordable or inaccessible.
How the Undue Hardship Standard is Evaluated
Federal guidance and standardized evaluation procedures continue to make the undue hardship standard more predictable for struggling borrowers.
Two significant shifts are underway. First, the U.S. Department of Justice and the Department of Education updated their joint guidance in 2022 to encourage a more flexible, fact-based approach when evaluating borrower hardship in bankruptcy cases. While that guidance came earlier, its impact is being felt more concretely in courts now as judges apply it to pending and new cases.
Second, court practice continues to rely on closer, more individualized evaluations of a borrower’s specific situation under this modern framework. Borrowers who previously would have been denied discharge are now receiving closer, more individualized review of their circumstances.
For Tennessee borrowers, this means the conversation about bankruptcy and student loans deserves a fresh look today, especially if prior attempts to discharge were denied or discouraged by outdated assumptions.
How the Adversary Proceeding Process Works in Tennessee
To seek student loan discharge in bankruptcy, Tennessee borrowers must file a separate lawsuit called an adversary proceeding within their bankruptcy case.
Filing for Chapter 7 or Chapter 13 bankruptcy alone does not automatically discharge student loans. A borrower must initiate an adversary proceeding, a formal complaint filed in U.S. Bankruptcy Court. In Chattanooga, cases are handled through the Eastern District of Tennessee, with the bankruptcy court located in the federal courthouse.
The process involves submitting an “Attestation Form” that the Department of Justice and Department of Education now use to evaluate borrower hardship consistently. The form gathers information about income, expenses, loan balance, repayment history, and other financial factors. While the bankruptcy judge still makes the final discharge decision, this structured process provides a far more predictable and manageable framework than the fully litigated battles of the past.
Who Qualifies Under the New Framework?
Borrowers with permanent disabilities, persistently low incomes, or loans that far exceed any realistic repayment capacity are strong candidates under the updated framework.
The updated guidance identifies several circumstances that may support a case for discharge during an individualized review, though qualification is not an automatic blanket rule:
- The borrower is 65 or older with limited income.
- The borrower has a permanent disability or chronic medical condition that limits earning capacity.
- The loan balance has grown significantly due to interest and is now far beyond the original amount borrowed, which can be an important individualized indicator of hardship.
- The borrower has been in repayment for a decade or more without meaningful progress toward payoff.
Tennessee borrowers who fall into these categories and who have not explored bankruptcy as an option for student loans should reassess their situation. Even those who were previously told discharge was impossible may now have grounds to pursue relief.
Chapter 7 vs. Chapter 13: Which Applies to Student Loans?
Both Chapter 7 and Chapter 13 bankruptcy allow borrowers to file an adversary proceeding for student loan discharge, though they serve different overall purposes.
Chapter 7 wipes out eligible unsecured debt relatively quickly, typically within a few months. Chapter 13 involves a structured repayment plan lasting three to five years, but it can still include an adversary proceeding to discharge student loans during or after the plan, provided the borrower meets the necessary undue hardship standard.
For some Chattanooga borrowers, Chapter 13 provides an opportunity to reorganize all debt while simultaneously pursuing discharge of student loans through the adversary process. The right approach depends on income, assets, and the total debt picture. An attorney can help evaluate which path makes more sense based on your specific circumstances.
Federal Loan Forgiveness Programs and Bankruptcy
Enrolling in a federal forgiveness program does not prevent you from also exploring bankruptcy as a parallel or alternative option.
Programs like Public Service Loan Forgiveness and income-driven repayment forgiveness continue to operate. But for borrowers who do not qualify for those programs, or who cannot sustain even reduced payments, bankruptcy may be a more direct path to relief.
It is also worth noting that any loan balance forgiven through federal programs may be treated as taxable income under current IRS rules, with potential financial consequences. Bankruptcy discharge, by contrast, does not generate taxable income.
Speak With a Chattanooga Bankruptcy Attorney
Student loan law is shifting, and the rules that once made discharge feel impossible are no longer the whole story. At Tom Bible Law, we work with Chattanooga residents who are carrying debt that has become genuinely unmanageable. We take the time to understand your financial situation and explain every option available to you under Tennessee and federal law.
If you are ready to explore whether bankruptcy could provide relief from your student loans, call us at 423-874-6628 or contact us to schedule a consultation.
