Private Student Loans and Dischargeability thru Bankruptcy
Bankruptcy Discharge Student Loans
Can I discharge my student loans in bankruptcy?
by: Andres Montejo, Esq.
As filings for Bankruptcy increase in these trying times, more and more debtors are inquiring about their single biggest debt in their credit profile, Student Loans.
In general bankruptcy attorneys will generally try to stay away from these and tell you that these types of debts are generally non dischargeable thru bankruptcy, and generally they are right.
I would like to make a distinction between Government based student loans, and Private based student loans. Government based student loans are loans which all the terms such as interest rate, lending criteria, repayment terms, and all others are dictated by the Government. Usually their lending limits are capped, but on the other hand the lending criteria are very flexible and permits lending to many that would not otherwise qualify.
On the other hand, Private sector loans have much tighter lending criteria in order to qualify, but the terms are set by each lender, and therefore one could actually borrow much more.
So the question is whether the fact that the student loan was obtained thru the private sector changes the equation and allows it to be qualified for discharge thru bankruptcy.
The answer is not a simple one, and I will try to respond to this in general and layman terms. Everyone should speak to their own Bankruptcy Attorney about their specific case, to evaluate their specific circumstances.
There are two main issues in responding to the question.
One has to do with the undue hardship exclusion of the exemption to Bankruptcy. This means that if one is able to prove undue hardship, then one would be able to discharge student loans whether they are Government based or Private sector based. I can imagine all the eyes opening here, and all saying “Wow, I can qualify for that, and discharge all my student debt.”
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