Bankrupt Your Student Loans
and other discharge strategy
Chuck Stewart, Ph.D.

Chuck Stewart, Ph.D.

Successfully bankrupted $54,000 in student loans.

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Changes From Earlier Editions

Currently, Bankrupt Your Student Loans and Other Discharge Strategies is in its third edition. Below are the major changes from previous editions.

Originally, the book used the terminology for Chapter 7 Bankruptcies. That has been modified to include Chapter 7, 11, 12, and 13 and their differences have been included in the text. The only real difference is the time for filing and adversary proceeding with a Chapter 13 is thought to be 30 days instead of 60 days as usual. This is being tested at this time.

Chapter 1


Reopening a Bankruptcy

Since the publication of the first edition of this book in 2005, the most frequently asked question comes from people who have already completed a bankruptcy. They are interested in knowing if it is possible to still bankrupt their student loans. Their correspondence is usually filled with despair and anger. Bankruptcy relieved them of some personal debt but not their student loans. Upon learning it was possible for them to have included their student loans in their bankruptcy, they feel duped by a system upheld by attorneys and the Department of Education.

A few of these people have recently attempted to reopen their bankruptcy to address their student loans. Some have met with success. They have shared their experiences and documents with the author. None of the cases have proceeded all the way to the final court hearing so we don’t know the actual chances for success. The information is presented here as a starting point. If you proceed with this course of action, please keep the author abreast of the case development. We would like to provide accurate information to others needing to take this course of action. Pleases check our website– – for updates on this strategy.

Recommendation: When other legal self-help books broach the topic of reopening a bankruptcy, they recommend that you seek the advice of an attorney. The author of this book also encourages you to seek the help of an attorney to reopen a bankruptcy.

Bankruptcy Code [Section 11 U.S.C. § 350(b)] authorizes bankruptcy courts to allow for the reopening of bankruptcy cases for a number of reasons. The decision to allow a case to be reopened is at the discretion of the court— meaning that the court is not required to reopen a case.

There are three steps to the process: (1) bring a motion to reopen the case, (2) amend your original petition by modifying Schedule F (this assumes you did not originally list your student loans), and (3) send notice to the creditors, trustee and the U.S. Trustee of the amendment. The fees for reopening and amending the original petition vary according to local law often costing as much as $1,000 and varies depending if you are reopening a Chapter 7, Chapter 11, or Chapter 13. One person who reopened his bankruptcy found that once the court was clear the purpose was to file an adversary proceeding to determine the dischargeability of student loans, the filing fees were waived.

  • Step 1 — Gather all your bankruptcy documents so that you can pull the necessary information.
  • Step 2 — Contact the court where your bankruptcy was processed to ask for guidance for filing a motion to reopen your bankruptcy. Forms, fees, timing and exact procedures vary from state to state. Some courts are providing forms that can be filled in and filed through the Internet. The forms and fees vary by court.
  • Step 3 — Prepare your Motion to Reopen Bankruptcy and file with the court. Two examples and blank form are provided in the Appendix. This shows how they vary depending on location. Remember, these forms are just a suggestion and their exact form may be different at your local court. You must check with your bankruptcy court first to find out what form they use.
  • Step 4 — Amend Bankruptcy Forms. Most likely, when you filed your original bankruptcy forms, you did not include your student loans under the section for unsecured debt. If this is so, then the forms need to be amended. In a Chapter 7 Bankruptcy, Schedule F is where your student loans should have been listed. Once your Motion to Reopen Bankruptcy is approved, an Amendment to Schedule F needs to be filed with the court. An example and blank form are provided in the Appendix. If you did include your student loans in the original bankruptcy, you do not need to perform this step.
  • Step 5 — Notify the creditor, trustee and the U.S. Trustee. Here, you notify the creditor (Department of Education) that the bankruptcy has been reopened and the list of creditors modified. Notification details are given in Chapter 9.

It has not been tested, but we believe you will have 30 or 60 days from the date the judge approves the Motion to Reopen Bankruptcy to complete these steps and file the adversary proceeding. Check with your local court to be sure. For details on preparing, filing, and representing yourself in an adversary proceeding, see Chapters 8 and 9.

We hope the best for you. If you have insight on this process, please contact the author so that better information can be provided to future debtors having to engage in this process.

See the new documents posted in the Documents and References.

Chapter 8

It does not matter if you are filing an adversary proceeding as part of a Chapter 7, Chapter 11, Chapter 12 or Chapter 13 bankruptcy, or attempting to have your loans discharged through Compromise or Write-Off (see Chapter 2), the preparation is similar. This chapter discusses only the adversary proceeding. See Chapter 10 for details for preparing a Compromise or Write-Off.

Comments about what constitutes a “student loan”— One of the major questions asked of the author of this book is whether or not particular student loans are federally guaranteed or not. This is an important question because loans made for schooling that are not federally guaranteed can be included in a bankruptcy without having to file an adversary proceeding. In reality, virtually all loans made for schooling are federally guaranteed. Further, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 amended the US Bankruptcy Code to include “qualified education loans” within the scope of the exception for discharging student loans. Private loans that are not “school certified” generally do not meet the definition of qualified education loans. “School certified” means the school complies with restrictions imposed by 26 USC 221(d)(l) which enforces limits on the amount of debt and other qualifications. Why would a school give private loans that are not “qualified education loans?” Easy, the school can lend more money than they otherwise would be permitted on a school-certified loan. Thus, if you received private loans you need to determine if the school is “certified” as described above. [See Kantrowitz, Mark (August 19, 2007). Limitations on Exception to Discharge of Private Student Loans,]

Chapter 11

Just Who Does the Negotiations at DOE?

Since the release of the first edition of this book, many people have asked how realistic is the Compromise or Write-Off strategy. There are many debtors who only have large student loan burdens that are causing hardship. They don’t want to file a bankruptcy since the rest of their financial situation is livable. So, let’s look at who it is that you will be negotiating with at the Department of Education.

Yes, the DOE is a large bureaucratic institution, but there are real people that you must negotiate with. How are these people rated on job performance? Will forgiving your loan look bad on their job performance? Like with a bank or other financial institution, there are loan managers who handle a caseload of loans. Because few workers stay on the exact same job for more than a few short years, loan managers are not evaluated on how much money they bring in but on how many loans are classified as “current,” “late,” “troubled,” or in “default.” The goal of any loan manager is to have all loans “current.” In the case of student loans that means payments are up to date or the loans are in forbearance or deferment. Obviously DOE employees don’t care how much money is actually coming in, just that the loans are current. Thus, you can see their motivation for severe hardship cases to shift the debtor to the Income Contingency Repayment or similar plan. It doesn’t matter that they may not get any money for 25 years, but that the loan is technically “current.” Although DOE claims a default rate of a few percentage points, other research indicates as much as two-thirds of all education loan will ultimately default. This is something DOE and Congress does not want to confront.

From this perspective, when negotiating with DOE think about how you can make your loan “current” or that you bring up issues so threatening to their house of cards that they would be hesitant to go to court. For example, the author of this book settled for paying $50 a month for ten years for a total of $6,000 while discharging $54,000 through the bankruptcy. Since the monthly payments are on time, the loan is considered “current” which makes the loan officer look good.

If your situation is dire but you are not in the position to file a bankruptcy at this time, maybe the ICR is an acceptable option. This can always be change due to future circumstances. Perhaps your financial situation deteriorates, then file for bankruptcy. If you become disabled, then file for a disability discharge. Of course, if you live to a ripe old age, the loans should be able to be discharged with a disability discharge. The worst thing to do is become delinquent with the loans since, if you need to file for bankruptcy, this will make you look bad and negatively impact your success with the adversary proceeding.

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