The belief that student loans can't be discharged in bankruptcy stops most borrowers from ever asking the question. That belief is incomplete. Most student loans do survive a standard discharge, but there’s a separate legal path designed specifically to challenge them, and that path produces real results for borrowers who can meet the right standard.
What separates a successful student loan discharge from an unsuccessful one isn’t luck or which judge you draw. It’s how well the facts of your situation map onto the legal test that controls your federal circuit. In Chicago, that test is defined by Seventh Circuit case law, and the procedure for bringing the claim is governed by rules most borrowers have never seen. Our student debt attorney in Chicago handles these cases alongside our Chapter 7 and Chapter 13 work for clients across Illinois, including filing and litigating adversary proceedings in contested matters.
Why Student Loans Don’t Discharge Automatically
Section 523(a)(8) of the Bankruptcy Code carves student loans out of the standard discharge. When a bankruptcy case closes, most unsecured debts are wiped out, but Section 523(a)(8) keeps student loan obligations alive unless the borrower takes a separate step to challenge them. That requirement applies equally in Chapter 7 and Chapter 13, so neither filing chapter gives you an automatic advantage on this debt.
The loans covered by Section 523(a)(8) are broader than most people expect. Federal student loans are covered, but so are private loans if they meet the legal definition of a “qualified education loan.” That scope matters when you get to the question of which loans might be dischargeable without any hardship showing at all, which we cover below.
The Legal Test Chicago Bankruptcy Courts Apply
The U.S. Bankruptcy Court for the Northern District of Illinois sits in Chicago (Eastern Division) and is part of the Seventh Circuit, which also covers Wisconsin and Indiana. That matters because federal bankruptcy courts apply the undue hardship test adopted by their circuit, and circuits don’t all use the same one.
The Seventh Circuit adopted the three-prong Brunner test.
To prevail under Brunner, a debtor must prove three things:
- The individual can’t maintain a minimal standard of living while repaying the loan
- This state of affairs is likely to persist for a significant portion of the remaining repayment period
- The individual has made good-faith efforts to repay.
How the Adversary Proceeding Works
A standard bankruptcy filing doesn’t touch student loans. To seek a discharge, you must file a separate complaint inside the bankruptcy case. This is called an adversary proceeding, and it functions as a mini-lawsuit within the bankruptcy court.
A few procedural details worth knowing before you start:
- No separate filing fee: Filing a dischargeability complaint doesn’t require a separate fee, and if an existing case must be reopened to file one, no reopening fee is required either.
- Service on the government: When the loan is federally held, the complaint is served on the government under Federal Rule of Bankruptcy Procedure 7004, and an Assistant U.S. Attorney is assigned to evaluate the claim on behalf of the Department of Justice.
- It can proceed in either chapter: An adversary proceeding can be filed in both Chapter 7 and Chapter 13 cases, giving you flexibility depending on your overall bankruptcy strategy.
The DOJ’s Streamlined Review Process
In November 2022, the Department of Justice and the Department of Education issued joint guidance creating a new attestation form process for evaluating undue hardship claims on DOE-held federal loans. Rather than forcing every case to trial, the guidance gives government attorneys a structured set of objective factors to apply when deciding whether to recommend discharge before the case reaches a judge. In October 2023, the Department of Education extended this framework to FFEL guarantors and Perkins loan holders, allowing them to use the attestation process to satisfy their existing regulatory obligations.
This is a meaningful development for borrowers whose loans are still held by the federal government, but it has two important limits. First, the guidance doesn’t change the Brunner standard itself. A bankruptcy judge still applies Brunner if the case goes to hearing. Second, the streamlined process doesn’t apply to private student loans, and for FFEL loans held by guaranty agencies such as Educational Credit Management Corporation, adoption of the attestation framework is voluntary rather than mandatory. Those cases are litigated the traditional way, under the full Brunner framework, without a guaranteed streamlined review pathway.
What to Weigh Before You File for Bankruptcy
Three issues consistently determine how viable a student loan discharge case is before a single document gets filed.
Loan Type & Holder
Whether your loan is held by the Department of Education directly or by a private servicer or guarantor changes everything about how the adversary proceeding unfolds. Only DOE-held Direct Loans qualify for the DOJ’s streamlined attestation review as a matter of right. If your FFEL loan was sold to a guaranty agency, or if you’re dealing with a private lender, the hardship case has to be built and argued the traditional way.
Good-Faith Repayment History
The third Brunner prong (good faith) is often where Seventh Circuit courts focus their scrutiny. Courts look at whether the debtor made consistent efforts to find employment, maximize income, and minimize living expenses before concluding the debt was unmanageable. A borrower who never applied for income-driven repayment, never sought loan consolidation, and made no payments at all faces a harder argument than one who tried available options before concluding they weren’t sufficient.
Whether the Loan Qualifies at All
Not every private student loan falls within Section 523(a)(8). A loan qualifies for the hardship exception only if it meets the definition of a “qualified education loan” under the tax code, meaning it funded attendance at a Title IV-eligible institution and didn’t exceed the school’s published cost of attendance. Private loans that exceeded the cost of attendance, funded attendance at a non-accredited program, or were structured more like personal loans may not qualify. If a loan falls outside that definition, it can be discharged in bankruptcy without any undue hardship showing, the same as credit card debt.
From Attestation Form to Contested Hearing
An attestation form submitted to the DOJ is a starting point, not an ending point. The outcome of an undue hardship claim turns on how each Brunner prong is documented, how the loan type and holder affect the procedural path, and whether the opposing party contests the claim at hearing. A form that goes unanswered results in a discharge; one that draws a government objection becomes a contested proceeding. The difference between those two outcomes is almost always in the preparation that happened before the complaint was filed.
Contact Our Firm for Guidance
If you’re carrying student loan debt in the Chicago area and want to understand whether your situation supports an adversary proceeding, our Chicago student debt lawyer at Attorney Joseph P. Doyle can evaluate your loans, walk through the Seventh Circuit standards that apply, and represent you through filing and litigation if the case warrants it.
Reach us at (312) 957-8077 or send us an online message.