How to File an Adversary Proceeding for Student Loans

Filing an adversary proceeding for student loans is a legal process that allows borrowers to seek debt discharge in bankruptcy. Unlike other types of debt, student loans are not automatically forgiven and require proving undue hardship in court, making the process more complex than standard bankruptcy filings.

Successfully pursuing an adversary proceeding requires careful preparation and adherence to legal procedures. Understanding the necessary steps can improve your chances of presenting a strong case.

Criteria to Start the Process

Before initiating an adversary proceeding for student loan discharge, borrowers must determine if they meet the legal standard of undue hardship. Courts typically apply either the Brunner test or the totality of circumstances test. The Brunner test, used in most jurisdictions, requires proving that repaying the loans would prevent maintaining a minimal standard of living, that financial hardship is likely to persist, and that good faith efforts have been made to repay the debt. The totality of circumstances test evaluates all relevant financial factors.

To strengthen a case, borrowers should assess their income, expenses, and employment prospects. Courts examine whether the borrower has maximized earning potential, minimized unnecessary expenses, and explored repayment options such as income-driven plans. A history of unsuccessful attempts to manage the debt demonstrates good faith. Medical conditions, disabilities, or other long-term hardships that limit earning capacity can also be significant.

An adversary proceeding must be filed within an active bankruptcy case, meaning borrowers must first file for Chapter 7 or Chapter 13 bankruptcy. Chapter 7 may lead to a quicker resolution, while Chapter 13 involves a repayment plan before seeking discharge. Consulting a bankruptcy attorney can help determine the best approach.

Drafting and Filing the Complaint

The complaint formally initiates an adversary proceeding for student loan discharge. It must outline the borrower’s legal argument, detailing why repayment would impose an excessive burden. Federal bankruptcy courts require specific formatting and content, following the procedural rules outlined in the Federal Rules of Bankruptcy Procedure, particularly Rule 7008.

The complaint must identify the borrower as the plaintiff and the lender or loan servicer as the defendant. It should include a detailed statement of facts, such as the borrower’s financial situation, employment status, and any extenuating circumstances. Supporting legal arguments should reference relevant case law, such as Brunner v. New York State Higher Education Services Corp., and cite 11 U.S.C. 523(a)(8), which governs student loan dischargeability.

The complaint should request specific relief, typically a full or partial discharge of student loan debt. If complete discharge is unlikely, borrowers may seek alternative remedies, such as loan restructuring. Any prior attempts at income-driven repayment plans or loan modifications should be documented.

Once finalized, the complaint must be filed with the bankruptcy court handling the borrower’s case. Courts typically charge a filing fee, though fee waivers may be available. The complaint is submitted electronically through the court’s filing system, CM/ECF (Case Management/Electronic Case Files). Pro se filers—those representing themselves—may need to file in person or by mail, depending on local court rules.

Serving the Complaint and Summons

After filing, the borrower must ensure the defendant receives proper notice of the lawsuit. Courts require plaintiffs to formally serve both the complaint and a summons, an official document issued by the court directing the defendant to respond. This process must comply with Rule 7004 of the Federal Rules of Bankruptcy Procedure.

For student loan adversary proceedings, the defendant is often a government entity, such as the U.S. Department of Education, or a private loan servicer. Serving a governmental agency involves additional steps. Under Rule 7004(b)(4) and (5), if the Department of Education is a named defendant, copies must be sent to both the Attorney General of the United States and the U.S. Attorney’s Office in the district where the bankruptcy case is pending. Private loan servicers are typically served at their principal place of business.

Failure to follow the correct procedures can result in delays or dismissal of the case. Plaintiffs commonly use certified mail with return receipt requested to provide proof of delivery. Some courts may allow personal service by a process server, though this is less common in bankruptcy proceedings. After service is completed, the plaintiff must file a certificate of service with the court.

Gathering Documentation and Evidence

Building a strong case requires thorough documentation that substantiates the borrower’s financial hardship. Courts closely examine a borrower’s financial history, making it necessary to compile a detailed record of income, expenses, assets, and liabilities. Pay stubs, tax returns, and bank statements from at least the past two years provide insight into earnings and financial stability, while household budgets and expense reports illustrate whether reasonable efforts have been made to reduce discretionary spending.

Medical records and physician statements can play a significant role if health issues impact earning capacity. A borrower with a chronic illness or disability should present documentation from healthcare providers detailing the condition’s severity and long-term effects on employment. If Social Security Disability benefits have been awarded, the approval notice and related determinations should be included, as courts weigh these factors heavily.

Employment history and job search efforts are also relevant. A history of frequent layoffs, prolonged unemployment, or an inability to secure stable work despite active job-seeking efforts can support claims of undue hardship. Letters from prospective employers, records of job applications, or vocational expert testimony may help establish that the borrower has exhausted all reasonable means of improving their financial situation.

Discovery and Pre-Trial

Once the complaint has been served and the defendant has responded, both parties enter the discovery phase, where they exchange evidence and gather additional information. Borrowers can obtain internal records from loan servicers, such as payment histories and correspondence regarding repayment options. These documents can reveal whether the lender provided adequate opportunities for debt relief or mishandled the borrower’s account.

Depositions and interrogatories are also common in adversary proceedings. A deposition involves sworn testimony from witnesses, including the borrower, lender representatives, or financial experts, which can be used as evidence during trial. Interrogatories are written questions that the opposing party must answer under oath. Borrowers may use these tools to establish financial distress, demonstrate good faith repayment attempts, or challenge the lender’s claims. Courts may also require mediation or settlement discussions before trial, offering borrowers a potential opportunity to negotiate a partial discharge or modified repayment terms.

Court Hearing and Decision

If no settlement is reached, the case proceeds to a court hearing, where both parties present their arguments before a bankruptcy judge. Borrowers must be prepared to testify about their financial situation and explain how loan repayment would create an excessive burden. Judges often scrutinize spending habits, employment efforts, and any alternative repayment options explored. Expert witnesses, such as vocational specialists or economists, may provide professional opinions on the borrower’s earning potential and long-term financial outlook.

After reviewing the evidence, the judge issues a decision, which may result in a full discharge, partial discharge, or denial of relief. A full discharge eliminates the borrower’s obligation to repay the loans, while a partial discharge reduces the debt amount or modifies repayment terms. If the request is denied, borrowers may appeal the ruling to a higher court or explore other debt relief options. The outcome largely depends on the strength of the evidence and the legal standards applied in the jurisdiction.