Can You File Bankruptcy on Student Loans in Arizona? 2026 Guide

Last Updated: February 15, 2026 | Reading Time: 11 minutes

Disclaimer: This article is for informational purposes only and does not constitute legal advice.

The short answer: Yes, but it's difficult. Student loans are not automatically discharged in bankruptcy—you must prove "undue hardship" through a separate legal process called an adversary proceeding.

For many Arizonans, student loan debt is the one financial burden that bankruptcy can't easily eliminate. While credit cards, medical bills, and personal loans can be wiped out in Chapter 7, student loans require meeting a strict legal standard that most borrowers struggle to satisfy.

However, discharging student loans in bankruptcy is not impossible. In 2026, new Department of Education guidelines and evolving court interpretations have made it somewhat easier for borrowers facing genuine financial distress. This guide explains exactly what it takes to discharge student loans in Arizona bankruptcy and what alternatives exist when undue hardship can't be proven.

Why Are Student Loans Different from Other Debts?

Student loans receive special treatment in bankruptcy due to changes made by Congress in 1976 and expanded over subsequent decades. The rationale was to prevent abuse—ensuring that borrowers who could afford to repay their education debts wouldn't simply file bankruptcy to avoid them.

The Undue Hardship Requirement

To discharge student loans in bankruptcy, you must file a separate lawsuit within your bankruptcy case called an adversary proceeding. In this proceeding, you must prove that repaying your student loans would cause you and your dependents undue hardship.

Unlike credit card debt—which is automatically discharged in Chapter 7—student loan discharge requires:

1. Filing the adversary proceeding (additional legal work and cost)
2. Meeting the undue hardship standard (strict legal test)
3. Negotiation or litigation with the loan servicer or Department of Education
4. Court approval of any settlement or discharge order

The Brunner Test: Arizona's Standard for Undue Hardship

Arizona bankruptcy courts use the Brunner Test to evaluate whether repaying student loans would cause undue hardship. Named after a 1987 Second Circuit case, this three-pronged test requires you to prove all three elements:

Prong 1: Minimal Standard of Living

You must show that you cannot maintain a minimal standard of living for yourself and your dependents if forced to repay the loans. This means demonstrating that:

• Your current income is insufficient to cover basic necessities
• Repayment would require sacrificing essential expenses like housing, food, utilities, or medical care
• Your budget leaves no room for loan payments after covering minimum living costs

Evidence needed:

• Detailed monthly budget showing all income and expenses
• Documentation of necessary expenses (rent/mortgage, groceries, utilities, medical costs)
• Proof of dependents and their needs

Prong 2: Persistence of Financial Hardship

You must demonstrate that your current financial situation is likely to persist for a significant portion of the repayment period. This is often the hardest prong to prove because it requires showing that your circumstances are not temporary.

Factors courts consider:

• Age and proximity to retirement
• Serious illness or chronic medical conditions
• Disability status
• Limited education or job skills
• Caring for dependents with special needs
• Length of time in current financial situation

Evidence needed:

• Medical records documenting chronic conditions
• Employment history showing limited earning potential
• Age documentation (borrowers near retirement have stronger cases)
• Expert testimony about job prospects in your field

Prong 3: Good Faith Effort

You must prove that you have made good faith efforts to repay the loans before filing bankruptcy. Courts want to see that you didn't immediately turn to bankruptcy without attempting repayment.

Evidence of good faith includes:

• Making payments when financially able
• Applying for income-driven repayment plans
• Attempting loan consolidation or rehabilitation
• Working with loan servicers on forbearance or deferment
• Seeking employment to improve income

Red flags that hurt good faith claims:

• Never making any payments
• Refusing income-driven repayment options
• Taking luxury vacations while claiming inability to pay
• Recently incurring other dischargeable debt

Recent Changes Making Discharge Easier (2024-2026)

In late 2022, the Department of Justice and Department of Education issued new guidance to make student loan discharge in bankruptcy more consistent and accessible. These changes, which continue to evolve through 2026, include:

Streamlined Process for Federal Loans

• The government now presumes undue hardship for certain categories of borrowers
• Faster review processes for borrowers who meet clear hardship criteria
• More willingness to stipulate to discharge rather than litigate

Clearer Standards

The 2022 guidelines established specific circumstances that strongly support undue hardship:

| Circumstance | Likelihood of Discharge | |--------------|------------------------| | Disability preventing gainful employment | Very High | | Age 65+ with limited retirement income | High | | Chronic illness with high medical costs | High | | Caring for disabled dependent full-time | High | | Unemployed 5+ years despite job search | Moderate-High | | Income below 150% federal poverty line | Moderate | | Bankruptcy due to circumstances beyond control | Moderate |

Arizona-Specific Considerations

Arizona bankruptcy judges have shown increasing willingness to grant student loan discharges when the Brunner Test is met. Key factors in Arizona cases include:

• Lower cost of living compared to coastal states means lower income thresholds for "minimal standard of living"
• Rural Arizona considerations for borrowers in areas with limited employment opportunities
• State-specific medical costs for chronic conditions common in desert climates

Step-by-Step: Filing for Student Loan Discharge in Arizona

If you believe you meet the undue hardship standard, here's the process:

Step 1: File Chapter 7 or Chapter 13 Bankruptcy

First, you must file a standard bankruptcy case. Most student loan discharge attempts occur within Chapter 7, though Chapter 13 is also possible. Your bankruptcy attorney will handle the initial filing.

Timeline: 1-2 weeks to prepare and file

Step 2: File the Adversary Proceeding

Within your bankruptcy case, your attorney files a complaint to determine dischargeability of student loans. This is a separate lawsuit with its own filing fees (typically $400-800).

Required documents:

• Complaint stating why loans should be discharged
• Detailed financial disclosures
• Supporting documentation for hardship claims

Timeline: Must be filed before bankruptcy discharge (typically within 60 days of 341 meeting)

Step 3: Serve the Loan Servicer

The complaint must be formally served on your student loan servicer and potentially the Department of Education. They have time to respond and may choose to:

• Stipulate to discharge (agree to discharge without litigation)
• Negotiate a settlement (partial discharge or modified terms)
• Litigate (oppose discharge in court)

Timeline: 30-90 days for servicer response

Step 4: Negotiation or Litigation

Most cases settle before trial. Under the 2022 guidelines, the government is more willing to negotiate partial discharges or favorable terms rather than litigate clear hardship cases.

Possible outcomes:

• Full discharge (rare, but possible for severe hardship)
• Partial discharge (reduced balance with modified repayment)
• Settlement (agreed payment plan or reduced lump sum)
• Trial (judge decides based on Brunner Test evidence)

Timeline: 3-12 months for resolution

Step 5: Court Approval

If a settlement is reached, the bankruptcy judge must approve the terms. If the case goes to trial, the judge will issue a ruling based on the evidence presented.

Costs of Pursuing Student Loan Discharge

Attempting to discharge student loans in bankruptcy involves additional costs beyond standard bankruptcy fees:

| Cost | Typical Amount | |------|----------------| | Adversary proceeding filing fee | $400-800 | | Additional attorney fees | $2,500-7,500 | | Expert witness (if needed) | $500-2,000 | | Document preparation | $200-500 | | Total additional cost | $3,600-10,800 |

Important: Many Arizona bankruptcy attorneys offer sliding scale fees or payment plans for adversary proceedings. Some will take these cases on a "no discharge, reduced fee" basis.

Success Rates: What Are Your Real Odds?

Historically, only about 0.1% of bankruptcy filers attempted to discharge student loans—primarily due to the perceived impossibility and high costs. However, success rates for those who actually file adversary proceedings are significantly higher:

| Outcome | Percentage | |---------|------------| | Full or partial discharge granted | 35-40% | | Favorable settlement reached | 25-30% | | Case dismissed or denied | 30-40% |

Key factors influencing success:

• Strong medical documentation dramatically improves odds
• Age 50+ significantly increases success rates
• Income below poverty line makes discharge more likely
• Federal loans have higher discharge rates than private loans under new guidelines

Alternatives When Undue Hardship Can't Be Proven

If you don't meet the Brunner Test standard, student loan discharge in bankruptcy may not be possible. However, other options exist:

Income-Driven Repayment (IDR) Plans

Federal loan borrowers can enroll in plans that cap monthly payments at 10-20% of discretionary income:

| Plan | Payment Cap | Forgiveness Timeline | |------|-------------|---------------------| | SAVE | 5-10% of discretionary income | 10-25 years | | PAYE | 10% of discretionary income | 20 years | | IBR | 10-15% of discretionary income | 20-25 years | | ICR | 20% of discretionary income | 25 years |

Benefit: Payments as low as $0/month for low-income borrowers. Remaining balance forgiven after term.

Total and Permanent Disability (TPD) Discharge

If you have a total and permanent disability, you may qualify for federal loan discharge without bankruptcy:

• SSDI/SSI recipients with 5-7 year review period automatically qualify
• VA disability rating of 100% qualifies
• Physician certification of inability to work qualifies

Process: Apply through DisabilityDischarge.com—no bankruptcy required.

Public Service Loan Forgiveness (PSLF)

Arizona has many qualifying employers for PSLF:

• State and local government agencies
• Public schools and universities (including ASU, U of A, NAU)
• Non-profit hospitals and healthcare providers
• 501(c)(3) organizations

Requirements: 120 qualifying payments while working full-time for a qualifying employer.

Teacher Loan Forgiveness

Arizona teachers in low-income schools may qualify for up to $17,500 in federal loan forgiveness after 5 years of teaching.

Arizona-Specific Programs

While Arizona doesn't offer state-level student loan forgiveness, residents should explore:

• Arizona Health Care Cost Containment System (AHCCCS) employment for PSLF
• Arizona State Loan Repayment Program (SLRP) for healthcare professionals in underserved areas
• Rural private practice loan repayment through Arizona Department of Health Services

Chapter 13 and Student Loans: Managing Debt Without Discharge

Even if you can't discharge student loans in Chapter 7, Chapter 13 bankruptcy can provide temporary relief:

How Chapter 13 Helps

• Automatic stay stops collections during the 3-5 year repayment plan
• $0 payments to student loans possible if all disposable income goes to priority debts
• Cure defaults and remove loans from collections
• Eliminate other debts to free up income for student loan payments

Limitations

• Loans continue accruing interest during Chapter 13
• Balances may actually grow if payments don't cover interest
• Loans must be paid in full after Chapter 13 completes (unless adversary proceeding succeeds)

Strategic Use

Some borrowers file Chapter 13 primarily to stop collections on student loans while pursuing other relief options (like TPD discharge or PSLF). This "buying time" strategy can be valuable for borrowers close to qualifying for other programs.

Private Student Loans: Different Rules

Private student loans are treated slightly differently than federal loans in bankruptcy:

More Discharge Options

• Some private loans don't meet the legal definition of "student loan" and may be dischargeable without proving undue hardship
• Loans used for non-qualified educational expenses (like bar exam prep, living expenses beyond school estimates) may be dischargeable
• Loans from non-traditional lenders may not have student loan protections

Harder to Modify

Unlike federal loans, private lenders have no obligation to offer income-driven repayment or forbearance. This makes discharge more critical for borrowers with high private loan burdens.

Higher Interest Rates

Private loans often carry higher interest rates (8-14% vs 3-7% for federal loans), making them more burdensome and strengthening undue hardship arguments.

Frequently Asked Questions

Can I discharge just some of my student loans?

Yes. You can target specific loans for discharge while keeping others. This is common when borrowers have both federal and private loans, or when some loans financed non-educational expenses.

What if I've already filed bankruptcy without an adversary proceeding?

If your bankruptcy case is still open, you can file the adversary proceeding. If your case has closed, you may need to reopen it (with court permission) to pursue student loan discharge—though this becomes more difficult and expensive.

Does filing an adversary proceeding hurt my credit more than regular bankruptcy?

No. The adversary proceeding itself doesn't appear separately on your credit report. The underlying bankruptcy is what impacts credit, and that's the same whether you pursue student loan discharge or not.

Can student loans be discharged in Chapter 13?

Yes, though it's less common. You can file an adversary proceeding in Chapter 13, but the process is more complex because Chapter 13 involves a multi-year repayment plan. Most successful student loan discharges occur in Chapter 7.

What about Parent PLUS loans?

Parent PLUS loans are treated the same as other federal student loans in bankruptcy—the parent borrower must prove undue hardship. The student cannot discharge Parent PLUS loans in their own bankruptcy.

Are there attorneys in Arizona who specialize in student loan discharge?

Yes. While most bankruptcy attorneys handle adversary proceedings, some Arizona firms specialize in student loan cases:

• Phoenix area: Several firms advertise student loan discharge expertise
• Tucson: Limited specialty options, but general bankruptcy attorneys can handle these cases
• Cost range: $3,000-10,000 for adversary proceeding (in addition to bankruptcy fees)

What documentation should I gather before meeting an attorney?

• Loan statements showing current balances and payment history
• Tax returns for past 2-3 years
• Pay stubs or proof of income for past 6 months
• Medical records documenting any chronic conditions or disabilities
• Budget showing monthly income and expenses
• Correspondence with loan servicers about repayment options you've attempted

Taking Action: Your Next Steps

Student loan debt doesn't have to be a life sentence. While discharge in bankruptcy is difficult, it's not impossible—and even when discharge isn't available, other relief options exist.

If you're considering student loan discharge in bankruptcy:

1. Consult a bankruptcy attorney who has experience with adversary proceedings—not all bankruptcy lawyers handle these cases
2. Gather documentation of your financial hardship before the consultation
3. Explore alternatives like income-driven repayment and forgiveness programs
4. Be realistic about your chances based on your specific circumstances
5. Consider the costs versus potential benefits

For immediate relief while you evaluate options:

• Apply for an income-driven repayment plan at StudentAid.gov
• Request forbearance or deferment if facing temporary hardship
• Explore loan consolidation to simplify payments
• Contact your loan servicer about available options

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Last Updated: February 15, 2026
Attorney Advertising. This website is not a law firm and does not provide legal advice. This article is for informational purposes only. Consult a licensed Arizona bankruptcy attorney for advice specific to your situation.

The information provided about student loan discharge reflects current law as of February 2026. Bankruptcy law and Department of Education policies change frequently. Always verify current requirements with a qualified attorney.