Private Student Loans and Bankruptcy


We have talked about how bankruptcy is very limited when dealing with any type of student loan — even private student loans with a bank.

Here is an article discussing an effort by the Consumer Financial Protection Bureau and, surprisingly, the Department of Education to open up more options to discharge a private student loan in bankruptcy.

Many people, old and young, are trapped by student loan they can never pay off. Federal student loans do have some options and protections but with private student loans it is the same as a credit card. Except you can very rarely get a bankruptcy discharge.

As the article points out:

Since 2005, no education loan can be discharged without an “undue hardship,” a challenging hurdle few overcome. The position of the DOE and CFPB is that private loans offer very little flexibility to struggling borrowers, particularly in today’s tough economic climate, thus making reform necessary.

It will be interesting to see what comes of this.

Do remember that often debt collectors will lie and say you cannot file bankruptcy, ever, on a student loan. This is the same type of lie they will often make about your wages will be garnished when the collection agency has not gone through all of the procedures to be able to garnish your wages. You have protection in the form of you can sue the collector for violating the FDCPA (Fair Debt Collection Practices Act).

But to have the realistic possibility of discharging private student loans would be a great help to many struggling with crushing student loan debt.

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