Preparing for a Student Loan Bankruptcy Discharge in 2026

For years, the “myth of non-dischargeability” has kept student loan borrowers from seeking relief. However, as we approach the 2026 regulatory shift, the OBBBA student loan consolidation process has become a critical step towards a successful bankruptcy discharge. While many outlets frame the July 1 deadline merely as a way to lower monthly payments through consolidation, it could be the first tactical step in preparing for an adversary proceeding in bankruptcy court.

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

Updated on January 24, 2026.

Key Points: OBBBA & The Bankruptcy Strategy:

• Direct Loan Requirement: Only Direct Consolidation Loans qualify for the 2026 streamlined bankruptcy attestation. FFEL and Perkins borrowers must consolidate to access the current high approval rates.
• July 1 “Legacy” Deadline: Consolidating before July 1, 2026, preserves the “Legacy” status and keeps access to older IDR plans, which can be helpful in demonstrating good‑faith repayment attempts in bankruptcy.
• Tax Liability: Student loan forgiveness becomes taxable again in 2026, while bankruptcy discharge remains tax‑free.
• Parent PLUS Warning: After July 1, 2026, new Parent PLUS consolidations are restricted to the Standard Plan. Consolidating early can retain IDR eligibility, a key factor in good‑faith analysis.
• RAP Shift: Consolidations completed on or after July 1, 2026, default into the new RAP plan, which includes a 30‑year forgiveness timeline and less favorable terms for high‑debt borrowers.

The Adversary Proceeding: 2026 Reality

Discharging student loans is not automatic; it requires an Adversary Proceeding (AP), which I like to describe as a mini-lawsuit within your bankruptcy case. To learn more about the adversary process as a way to reduce or eliminate student loan debt, read this recent article.

Professor’s Note: Even though student loan debt is not automatically discharged, it must still be listed in the bankruptcy petition.

Thanks to the 2022/2023 policy shifts, student loan forgiveness is not automatically a loss. The process now requires that the government use an Attestation Form to evaluate three key areas:

Minimal Standard of Living: Your current income vs. necessary expenses.

Persistence of Hardship: Why your financial situation is unlikely to change for a significant portion of the repayment period.

Good Faith Effort: Enrolling in available repayment options, such as consolidating to access an Income‑Driven Repayment (IDR) plan, can help demonstrate good faith because it shows you made a reasonable effort to manage the debt before seeking discharge.

Professor’s Note: However, note that the Courts don’t require consolidation or IDR participation, but they often view these steps as positive indicators within the broader pattern of responsible financial behavior.

The One Big Beautiful Bill Act (OBBBA) Impact and the “Tax Bomb”

As we approach the July 1, 2026, deadline, two factors are critical for bankruptcy planning under the One Big Beautiful Bill Act (OBBBA),

The RAP Sunset Clause: After July 1, new student loan consolidations may be limited to the Repayment Assistance Plan (RAP). If your goal is a bankruptcy discharge, ensure your plan enrollment doesn’t inadvertently reset your “good faith” effort/clock in a way that affects your case.

The Return of the Tax Bomb: Since January 1, 2026, loan forgiveness has once again been treated as taxable income. For many, a bankruptcy discharge is now the only way to eliminate the debt without trading a student loan for a massive IRS bill.

Summary of Qualifying Loans for 2026 Discharge

To use the streamlined attestation process, ensure the following are consolidated into a Direct Loan by the July deadline:

• FFEL Subsidized & Unsubsidized
• Perkins Loans
• Parent PLUS (Note: These require specific strategic handling in bankruptcy)
• Health Professions Student Loans

For more information, make sure to review the Federal Student Aid website.

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You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

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