When financial struggles become overwhelming, many people turn to bankruptcy as a way to find relief and start fresh. But one of the most common questions people ask is: Does bankruptcy cover student loans or tax debt? The short answer is “sometimes”—but the details matter.
Student Loans and Bankruptcy
Traditionally, student loans are very difficult to discharge in bankruptcy. Under the U.S. Bankruptcy Code, both federal and private student loans are presumed non-dischargeable. That means they don’t automatically go away when you file Chapter 7 or Chapter 13 bankruptcy.
To get student loans discharged, you must file a separate lawsuit within your bankruptcy case called an adversary proceeding. There, you’ll need to prove that repaying your student loans would cause “undue hardship.” Courts typically use the Brunner test, which looks at three factors:
- Whether you can maintain a minimal standard of living if forced to repay.
- Whether your financial situation is likely to persist for a significant portion of the repayment period.
- Whether you’ve made good-faith efforts to repay your loans.
Because this standard is strict, most borrowers don’t qualify. However, recent policy changes have made it easier in some cases, especially for borrowers facing long-term hardship.
Tax Debt and Bankruptcy
Unlike student loans, tax debt can sometimes be wiped out in bankruptcy—if certain conditions are met.
You may be able to discharge federal or state income tax debt if:
- The taxes are income taxes (not payroll or fraud-related taxes).
- The tax return was due at least three years before you filed bankruptcy.
- You filed your tax return at least two years before filing.
- The tax was assessed at least 240 days before filing.
- There was no fraud or willful tax evasion involved.
Even if your tax debt itself doesn’t qualify for discharge, bankruptcy can still help by stopping IRS collection actions, wage garnishments, and levies while you’re in the process.
Chapter 7 vs. Chapter 13
- Chapter 7 Bankruptcy: Quickly eliminates qualifying debts, but student loans usually remain, and only certain tax debts may qualify.
- Chapter 13 Bankruptcy: Lets you restructure debt through a 3–5 year repayment plan. While student loans typically survive, Chapter 13 can help you manage payments and stop aggressive collection actions. For tax debt, Chapter 13 may allow you to pay it off over time without penalties or interest.
Key Takeaway
- Student loans: Rarely discharged, unless you prove undue hardship.
- Tax debt: Sometimes dischargeable, depending on age of the debt, type of tax, and timing of returns.
If you’re struggling with either student loan debt or back taxes, bankruptcy may still provide relief, even if the debt isn’t fully wiped out. It can stop collections, give you breathing room, and create a manageable path forward.
✅ Next Step: Always consult with a qualified bankruptcy attorney in your state. Every case is unique, and a lawyer can tell you whether your student loans or tax debts might be reduced or eliminated under bankruptcy law.
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