Busting myths about bankruptcy and private student loans

private student loans

private student loans

private student loans consumers who are drowning in debt can make a fresh financial start according to the United States Bankruptcy Code. Those with decades-old student debt, many of whom may have been susceptible to unscrupulous techniques, are especially in need of this safety net.

This long-held misconception that bankruptcy cannot wipe off student debt must end. Actually, student debts are eligible for bankruptcy discharge, thus this misconception is false. The U.S. Department of Education has taken significant action to expand access to bankruptcy protections for borrowers of federal student loans.

It is critical that private student loan debtors have access to the protections afforded to consumers by the Bankruptcy Code, and that loan owners, lenders, servicers, and debt collectors respect the discharge of debts granted by a bankruptcy judge.

You can get out of your student loans if you file for bankruptcy.
So why do many believe falsehoods that student debts cannot be dismissed in bankruptcy? It is true that discharging many student loans can be more challenging than discharging other types of unsecured debt.

The Bankruptcy Code provides a more difficult test for relief (a showing of “undue hardship”) and an additional step (an “adversary proceeding,” essentially a lawsuit within the bankruptcy). Some borrowers, however, may not be aware that it is still feasible to get a discharge even if that higher criterion and the additional procedure are met.

Not all loans that borrowers could label “private student loans” are really subject to that requirement. Instead, unlike federal student loans, certain private student loans can be dismissed in a bankruptcy case.

Bankruptcy allows the cancellation of some forms of unsecured consumer debt, including numerous loan types related to college costs. These student loans are exempt from stricter criteria and additional procedures. Some examples of such financing are:

Paying a consumer directly for a loan might result in situations where the loan amount is more than the student’s actual financial obligation for school-related expenses.

Borrowing money to attend a school that doesn’t meet Title IV’s criteria, such as one that isn’t regionally accredited, one that is located outside the United States, or one that offers vocational or technical certifications that aren’t recognized in the United States.

Money borrowed to help fund tuition, housing, and living costs while taking the bar exam or another professional licensing examination.
Money borrowed to pay for tuition, housing, and travel expenses during a medical or dental residency program.

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