## Student-loan discharge in bankruptcy in Colorado Student loans were long considered virtually un-dischargeable in bankruptcy. **That's changed dramatically since 2022** — both because of new DOJ guidance and shifting court attitudes. ## The basic rule — "undue hardship" **Bankruptcy Code § 523(a)(8):** - Student loans NOT discharged in bankruptcy UNLESS - Debtor proves "undue hardship" through adversary proceeding - Adversary proceeding = mini-lawsuit within bankruptcy - Higher burden than discharging credit-card debt ## What loans qualify as "student loans" for § 523(a)(8)? **Definitely covered (need undue hardship):** - Federal student loans (Direct, FFEL, Perkins, PLUS) - Federally guaranteed loans - Loans from non-profit institutions - "Qualified education loans" under tax code (most private student loans for qualified education at qualified institution) **NOT covered (dischargeable normally):** - Loans NOT for "qualified higher education" (e.g., vocational K-12) - Loans for non-degree programs not on Title IV list - Loans exceeding "cost of attendance" - Bar-exam / prep-course loans (some courts) - Career-training loans (varies) - Loans where debtor's school wasn't accredited / Title IV **Many private "student" loans actually fall outside § 523(a)(8) — and are normally dischargeable.** ## The Brunner test (most courts) **Three prongs (Brunner v. NY State Higher Ed., 1987):** **1. Inability to maintain minimal standard of living** if forced to repay: - Income vs essential expenses - IRS Standards (or local) for expenses - Modest budget required **2. Additional circumstances** indicating future inability: - Long-term issues (disability, age, education limits) - Not just temporary problems - Forward-looking analysis **3. Good faith efforts** to repay: - Income-driven repayment plans tried - Forbearance / deferment when needed - Some payment history - No "strategic default" **Some circuits use "totality of circumstances" test instead.** ## DOJ 2022 GUIDANCE — GAME CHANGER **November 2022 DOJ guidance:** - Streamlined federal student-loan discharge - Joint DOJ/Education Department review - Simplified attestation form - Pre-screened cases for support - Has dramatically increased successful discharges **Key DOJ-supported categories:** - Older debtors (50+) with limited prospects - Disability-related cases - Long-term unemployment - Schools that closed / lost accreditation (separate ED program for this) - Demonstrably impossible repayment **Result:** Roughly 99% of cases where DOJ doesn't oppose result in discharge. ## Federal student-loan alternatives BEFORE bankruptcy **1. Income-Driven Repayment (IDR):** - SAVE plan (newest, currently in litigation) - IBR (Income-Based Repayment) - PAYE (Pay As You Earn) - ICR (Income-Contingent Repayment) - Payments based on income - Forgiveness after 20-25 years - IDR "$0 payment" still counts toward forgiveness **2. Public Service Loan Forgiveness (PSLF):** - 10 years (120 payments) of qualifying service - Government / 501(c)(3) employment - Direct Loans only (consolidate other types) - Tax-free forgiveness - Recent expansions made many more eligible **3. Total and Permanent Disability discharge (TPD):** - Federal program for disabled borrowers - VA disability rating, SSDI, or physician certification - Tax-free discharge (CARES Act through 2025; check current law) - Doesn't need bankruptcy **4. Borrower Defense to Repayment:** - For students of fraudulent / closed schools - Federal Student Aid program - Discharges loans from misrepresentation **5. Closed-School Discharge:** - School closed during enrollment / shortly after - Federal program (not bankruptcy) - Recent expansions **6. Death / Disability Discharge:** - Federal loans only - Discharge if borrower dies / becomes permanently disabled ## Private student loans — different rules **Private loans are NOT eligible for federal programs:** - No IDR / PSLF / TPD discharge - Bankruptcy + lawsuit are main options - Statute of limitations CAN run (federal loans have NO SOL) - Defaulted private loans may be assigned to collectors **Private loan bankruptcy issues:** - Many actually outside § 523(a)(8) - Need to determine if "qualified education loan" - Standard discharge analysis if not qualified ## Adversary proceeding process **1. File main bankruptcy** (Chapter 7 or 13) **2. File adversary proceeding** specifically for student-loan discharge **3. Discovery + evidence gathering** **4. DOJ review** (federal loans) per 2022 guidance **5. Settlement / trial / decision** **6. Discharge order** (if successful) ## Strategy with student loans + bankruptcy **Chapter 7 + adversary:** - Discharge other debts - Adversary for student loans - Most cost-effective if approved **Chapter 13 + adversary:** - 3-5 year plan with manageable payments - Pay students loans pro-rata with other unsecured - File adversary at end / during - Some courts more amenable in Chapter 13 **Income-driven first:** - Sometimes IDR + PSLF / forgiveness adequate - Less drastic than bankruptcy - Adversary as backup if IDR doesn't help ## Common factors courts consider - Age + work history - Education + earning potential - Health / disability - Family obligations - Income trajectory - Reasonable expenses - Loan amount + interest - Repayment effort - Job market in field ## Recent trends **More discharges granted:** - DOJ 2022 guidance - Courts moving away from harsh Brunner application - Recognition of unrealistic standards - Higher discharge rates in 2023-2025 **But still:** - Adversary proceedings cost money + effort - Many borrowers don't pursue - Most successful cases have specific facts - Loan size matters less than ability to pay ## Tax implications **Generally:** - Discharged debt = taxable income (1099-C) - BUT student-loan discharge tax-FREE through 2025 (American Rescue Plan) - Insolvency exception generally available - Bankruptcy exception generally available - Always check current law ## What you should do If you're a Colorado resident overwhelmed by student loans: first explore federal options (IDR / PSLF / TPD / borrower defense). If federal options inadequate, consult a bankruptcy attorney with student-loan experience. The 2022 DOJ guidance has made discharge much more achievable than 5 years ago. Many Colorado bankruptcy attorneys now actively pursue student-loan adversary proceedings. --- *This guide is general information about federal bankruptcy + student-loan law as of mid-2026 and is not legal advice. Student-loan discharge is technical + evolving. Talk to a licensed Colorado bankruptcy attorney about your specific case.*