Student Loans and Bankruptcy in Pennsylvania

Student loans are not automatically discharged in bankruptcy. That is the honest answer, and I would rather you hear it from me than find out later. But that is not the whole answer — bankruptcy still does real work on student loan problems, and the discharge door is not locked as tightly as it was ten years ago.

Why student loans are treated differently. Under 11 U.S.C. § 523(a)(8), qualified education loans survive a bankruptcy discharge unless the court finds that excepting them would impose an "undue hardship" on you and your dependents. That finding requires a separate lawsuit inside your bankruptcy case, called an adversary proceeding.

The Brunner test. Third Circuit courts, which cover all of Pennsylvania, apply the three-part Brunner standard: (1) you cannot maintain a minimal standard of living for yourself and your dependents if forced to repay; (2) additional circumstances indicate that state of affairs is likely to persist for a significant portion of the repayment period; and (3) you have made good-faith efforts to repay. It is a demanding test, but it is a test — not a bar. Filers with a permanent disability, a serious chronic illness, an age-related earnings ceiling, or a long documented history of income far below the loan balance are the strongest candidates.

What has changed recently. In late 2022 the Department of Justice and the Department of Education adopted a formal guidance process for evaluating undue-hardship claims in bankruptcy, built around a standardized attestation form and clearer criteria for when government attorneys will stipulate to a discharge rather than fight it. Reported outcomes since then show meaningfully more discharges and settlements than the pre-2022 baseline, and courts have shown more willingness to grant partial discharges. I will not promise you a particular result — the outcome still depends on your facts, your judge, and the loan servicer — but the landscape is genuinely more favorable than the "student loans can never be discharged" advice that circulated for years. If you have private student loans, note separately that some do not meet the § 523(a)(8) definition of a qualified education loan at all and can be discharged without an adversary proceeding.

What bankruptcy does even when the loans survive. This is the part most people miss.

• The automatic stay under § 362 stops administrative wage garnishment on defaulted federal loans, Treasury offset of your tax refund, and collection calls for the duration of the case.

• Discharging your credit cards, medical bills, and personal loans frees up monthly income, which often makes an income-driven repayment plan affordable for the first time.

• A Chapter 13 plan can hold student loan collection at bay for three to five years while you stabilize, and in some districts the plan can provide for ongoing payments.

• Getting out of default through consolidation or rehabilitation is far easier once the rest of your budget is not underwater.

For a lot of Pennsylvania clients, the realistic goal is not discharging the student loans — it is clearing everything else so the student loans become manageable. That is a legitimate and often life-changing outcome.