You can discharge many kinds of debts through bankruptcy; however, some kinds of educational expenses, such as federal student loans, are not dischargeable. Until recently, the law was unclear on whether private student loans are non-dischargeable higher education expenses.
Thanks to a recent federal court ruling, some debtors may be able to discharge private student loans through bankruptcy.
Private vs. federal student loans
The government backs federal student loans and lenders must adhere to the terms and conditions specified in federal law. Provisions in the bankruptcy code prevent borrowers from discharging these loans through bankruptcy. Examples of federal loans include Direct Subsidized and Direct Unsubsidized Loans and Direct Plus Loans.
Credit unions, banks and other organizations issue private loans and the federal government does not guarantee them. These loans are usually more expensive than federal loans and most have credit requirements. Because the court has determined that these types of loans do not qualify as protected higher education expenses under the United States Bankruptcy Code, debtors may be able to discharge private loans through bankruptcy.
Including a private student loan in a bankruptcy
If you are struggling to make payments on private student loans, you may wish to consider including them in a bankruptcy filing. However, if you have a cosigner on the loan, that person may still be liable for the debt.
Many people struggle with student loan debt. If you are having trouble making the payments on your private student loans, you may be able to gain some relief by discharging these loans through bankruptcy.