Private Student Loan Debts and Bankruptcy

Remember the countless times you have heard “student loans are not forgivable in bankruptcy”? While this might often be the case, it is not always the case. Some private student loan debts are actually forgivable in bankruptcy. These student loan debts can be treated just like other types of unsecured consumer debt during a chapter 13 bankruptcy or a chapter 7 bankruptcy.

There are three basic scenarios that could help you determine if your loan might be dischargeable in bankruptcy (and many more factors that would need to be addressed on a case-by-case basis).

• You didn’t attend a Title IV school. Private student loans must be used to attend a Title IV-certified school (schools with federally approved accreditation) to be considered non-dischargeable educational loans. If the school you were attending did was not eligible to receive federal loans, thereby preventing you from taking out federal student loan debt, then your school was not Title IV-certified and your student loans may be dischargeable.

• You borrowed more than the school’s cost of attendance. For qualified student loan purposes, the most you should have been able to receive in student loan debt is the school’s cost of attendance. This is determined by the school – for things such as tuition, fees, room, board and educational supplies - deducting other financial aid that you may have received, such as grants and scholarships. If you were permitted to borrow more than these pre-determined expenses, you may be eligible for student loan debt relief.

• You weren’t an eligible student. Qualified educational loans can only be issued to eligible students. If you borrowed money but didn’t have at least a half-time schedule or you were not a U.S. citizen, the loan might not have been a qualified educational loan and student loan debt litigation should be explored.

If you fall into one of these categories, you may be able to get private student loans discharged through your chapter 7 or chapter 13 bankruptcy. If you’ve already gone through bankruptcy and you fall into one of these categories, exploring student loan debt litigation to remedy what should have already been discharged is an option.

Keep in mind that this area of law is still relatively new, so some bankruptcy attorneys may not be familiar with how to handle your private student loan debts. It is recommended that you seek out firms that specialize in this kind of niche student loan debt relief practice.