Yes. Being retired and living on Social Security does not stop you from asking the bankruptcy court to discharge federal student loans, and for many older borrowers it is one of the facts that helps most. Under the Justice Department's student loan guidance, a borrower who is 65 or older is presumed to be unable to repay in the future, though the final decision always belongs to the bankruptcy judge.
The legal test is the same at any age
Student loans can be discharged only if repaying them would be an "undue hardship" for you and your dependents. That standard comes from the Bankruptcy Code, 11 U.S.C. § 523(a)(8). To ask for it, you file a separate lawsuit inside your bankruptcy case, called an adversary proceeding, against the U.S. Department of Education.
Since November 2022, the Justice Department has used a written attestation form to review these cases. You answer questions about your income, expenses, assets and repayment history under penalty of perjury. A government attorney then decides whether to agree that the loans should be discharged in full, in part, or not at all.
Where your age comes in
The guidance asks whether your financial situation is likely to stay the same. It applies a presumption that your inability to pay will persist in several situations, including when:
- you are 65 or older,
- you have a disability or chronic injury that affects your ability to earn, or
- your loan has been in repayment (not in-school) status for at least ten years.
Some retirees meet more than one of these. A presumption is not automatic, though. The guidance says it can be rebutted, but only with concrete facts, such as substantial assets or income you can reasonably expect to come in.
How Social Security is counted
Social Security is counted as income. The guidance lists Social Security benefits as part of your gross household income, along with wages, other income sources, and income from other people in your household, such as a working spouse.
Your allowable expenses are measured using the IRS Collection Financial Standards. One of those standards, out-of-pocket health care, has a separate figure for people 65 and older. If your allowable expenses exceed your household income, the guidance treats that part of the test as met: you cannot pay right now.
For example, imagine a 68-year-old widow whose only income is a modest Social Security check and who rents an apartment in Las Vegas. If her allowable expenses exceed her monthly income, she cannot pay now, and her age supports the presumption that this will not change. Whether the government agrees still depends on the full picture, including her assets.
What about retirement savings?
Your assets are part of the review. The guidance tells government attorneys not to give decisive weight to assets that are hard to turn into cash or are critical to your well-being. It also calls cashing out a retirement account "an extreme measure." Every case still turns on its own facts.
Your Social Security in bankruptcy
Federal law, 42 U.S.C. § 407, protects Social Security benefits from garnishment and other legal process, including the operation of bankruptcy law. Filing does not hand your monthly check to your other creditors.
Defaulted federal student loans are different. Federal regulations allow the Treasury to withhold part of a monthly Social Security payment to collect a defaulted federal debt. Supplemental Security Income (SSI) is excluded. Whether and when the Department of Education uses this tool has changed in recent years, so open any mail about your loans promptly.
Good faith still matters
The government will also look at whether you made a good-faith effort to repay over the years. That can include making payments, applying for an income-driven plan, or responding to your servicer. Not enrolling in an income-driven plan, by itself, does not show a lack of good faith.
Talk to us
If you are retired or close to it and still carry federal student loans, a short conversation can tell you whether this process fits your situation. Your first consultation is free and can be done by phone or video. Call the Law Office of Brian D. Shapiro, LLC at 702-386-8600.