Can you file bankruptcy on private student loans? Here’s what you need to know if you struggle to keep up with private and public loan payments.
Student loan debt is a huge problem in the United States. Many people find themselves in deep debt before they even begin earning money.
For many, bankruptcy is the best option when financial strife gets too intense. Public student loans issued by the government usually have a low interest rate, but this isn’t always the case for private loans. This puts you at greater risk for getting into financial trouble with student loans.
But can you file bankruptcy on private student loans?
If you struggle to make your student loan payments, you might consider bankruptcy as a way to get relief. While bankruptcy provides some relief, it’s not always the best option for dealing with student loan debt.
Here are five things you need to know about bankruptcy and student loans:
1. Bankruptcy Can Help You Get Rid of Student Loan Debt
If you file for bankruptcy, you may be able to get rid of your student loan debt. This is called a discharge. To qualify for a discharge, you must show that repaying the loan would cause undue hardship. This is not easy to do, and most people do not qualify for a discharge.
Can you file bankruptcy on private student loans?
When it comes to private loans, it’s possible to get a discharge. This is great news if your loans are part or in full private.
The Bankruptcy Code prevents certain types of debt from being discharged in bankruptcy. This includes debt incurred as part of an “educational benefit.” However, a 2020 court ruling determined private student loans don’t fall into this category.
2. Bankruptcy Can’t Help You If You Cosigned Your Student Loans
If you cosigned your student loans, you cannot discharge them in bankruptcy. This is because the loan is not just your debt, it is also the debt of the person who cosigned for you.
If you file for bankruptcy and do not have a cosigner, the lender may try to recover the debt from the cosigner.
3. Bankruptcy Can Help You Eliminate Private Student Loans
Bankruptcy can help you deal with a variety of types of debt, including some types of student loan debt. You and your bankruptcy attorney will evaluate you debt and determine how bankruptcy might help you.
Remember, just because it’s legal to discharge these debts in bankruptcy doesn’t mean it’s advisable. Make sure you weigh the implications of this drastic debt relief measure and consider all of your alternatives.
4. Bankruptcy Can’t Help You Get Rid of Federal Student Loans
Federal student loans are rarely eligible for discharge in bankruptcy.
There are a few exceptions.
If you can show that repaying the loan would cause undue hardship, you may be able to discharge the loan. This is difficult to do, so it’s important you work with an experienced bankruptcy attorney if this is something you want to accomplish.
5. Bankruptcy Has a Negative Impact on Your Credit Score
Filing for bankruptcy damages your credit score. This makes it more difficult to borrow money in the future or to get a job.
However, not paying your bills also damages your credit score. For many people, bankruptcy is the better option, despite its negative consequences.
If you would like more information on filing for bankruptcy or you have concerns that your student loan debt could get you into financial trouble, please contact our office today. We would be happy to answer any of your questions and help you get started on the path to financial freedom.