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Private Student Loans in Bankruptcy

Recent changes to federal bankruptcy laws have made all student loans, even private ones, non-dischargeable in bankruptcy. There is, however, a key exception if you can prove that you face a substantial, undue hardship. This is explained below.

In addition, you may be able to discharge some or all of your unsecured debts through bankruptcy. Eliminating other debts may allow you to make your private student loan payments.

To learn more about private student loans in bankruptcy, connect with a local lawyer for a free consultation by filling out this form.

Can Private Student Loans be Eliminated in Bankruptcy?

With the ever-expanding cost of higher education, many Americans have found themselves buried in student loan debt. Years ago, it was easier to discharge this type of debt through bankruptcy.

To many students' chagrin, a 2005 change in federal bankruptcy law made private student loans non-dischargeable in bankruptcy. There are, however, potential exceptions if your school closed unexpectedly or committed some other wrongdoing.

In addition, another exception to the student loan rules is the finding of undue hardship. If you prove that you cannot pay your loans due to a substantial hardship, you may be able to discharge some student loans.

In order to prove undue hardship, you must show that:

  • Paying your student loans would force you to live below a minimum standard of living, usually determine by your local court.
  • Your difficult financial situation will continue for a long period of time and shows little chance of improving.
  • You have made some past effort to repay part of your student loan debt.

If you prove all three of these elements, the bankruptcy court may allow you to discharge some or all of your unpaid private student loans.

This hardship exception typically applies in Chapter 7 proceedings, which are typically reserved for people with limited income.

Other Student Loan Discharge Options in Bankruptcy

If, instead of Chapter 7, you opt for Chapter 13 bankruptcy, you may reorganize your missed student loan payments into a different payment plan. This typically gives you three to five years to catch up on overdue payments.

It does not, however, allow you to completely discharge your private student loans in bankruptcy. A key benefit of bankruptcy, though, is its ability to help you discharge other forms of debt, freeing up funds to pay off your student loans.

By filing for bankruptcy, you may be able to eliminate:

Thus, you may be able to regain your financial health and tackle your student loans with a more robust bank account.


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