Bankruptcy and Private Student Loan
Bankruptcy and Private Student Loans
Most people know that when filing for bankruptcy, federal student loans are virtually in another league. Per federal law, student loans are not dischargeable in bankruptcy unless the borrower can prove the payment imposes an “undue hardship” on them or their family. Because it is nearly impossible to demonstrate “undue hardship” most people find that when they file bankruptcy, they are still left paying off their student loans.
However, what about private student loans? Unlike federal student loans, private student loans are backed by private lenders – not the U.S. Department of Education. Unfortunately for some, private student loans are not easy to discharge as well. Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, private student loans are treated the same as federally-backed student loans when it comes to bankruptcy.
If you are a borrower of private student loans, however, not all hope is lost. When filing Chapter 13, you could have your student loans consolidated with the other bills you are filing bankruptcy on. Under this chapter, you repay your dept over the course of three to five years. By including your student loans in the bankruptcy repayment plan, you may be able to put a dent in the private student loan balances. You probably will not be able to pay off all your private student loans during this time frame. The remainder amount due will still need paid on after the Chapter 13 payment plan is complete.
Before considering bankruptcy, borrows can also look into a private student loan consolidation. This can help to lower the monthly payment and lump all the private loans into one bill under one interest rate. This alone could be enough to alleviate some hardship and prevent the borrower from heading to bankruptcy court.
To learn more postponing payments, contact your private student loan lender.
