Private Student Loan Bankruptcy

December 15, 2011

Private Student Loan Bankruptcy

Private Student Loan Bankruptcy

There has been a lot of debate to whether private student loan bankruptcy is actually possible, which there have been cases where individuals have been able to discharge their student loans through the act of filing bankruptcy, where as some privatge lenders actually state that bankruptcy is not a possibilty. The general rule of thumb that applies to the eligibilty to partake in student loan bankruptcy for private loans is that you must prove that your are experiencing what is called “undue hardship”. The basic definition of undue hardship is, if student loan payments are creating a large burden on yourself or the one who is responsible for paying off your loan like a parent, or creating hardship for your family like a couple or a couple with children.

What situation qualifies for undue hardship? Well for examples sake, Sallie Mae one of the biggest providers of private student loans, states that in order to qualify for undue hardship and use private student loan bankruptcy as a way to discharge your loans, you must basically not be able to work and not able to make any money at all. In this case, in order to use bankrytcy for private student loans, you will actually need to go in front of a judge and prove your situation.

Why Is Private Student Loan Bankruptcy So Hard To Qualify For

The basic reason that it is hard use private student loan bankruptcy is the fact that is has no benefit for anyone, being both your private loan lender who will lose money as well as tax payers will actually lose out on money as well. Not to mention that fact that the one who files for private loan bankruptcy will end up ruining their credit as well as pretty much losing out on the privelage of borrowing money. So the real reason to make it so hard to qualify is to protect pretty much everyone who would be affected.

Latest News On Private Student Loan Bankruptcy

Although the outlook on one qualifying for private student loan bankruptcy looks pretty dismal, there is a law in the works that can drastically change the rules to who and what situation can qualify for bankruptcy. The law that is being processed right now is:

  • The Private Student Loan Bankruptcy Fairness Act of 2011 – This act is just now in the first step of the entire legislative process.
  • Fairness For Struggling Students Act of 2011

Alternatives To Consider Before Bankruptcy

Private student loan bankrupcy obviously should be considered as a last resort as it can impose negative situations on your life. Some other alternatives that you can consider, which will help you get out of debt are:

  • Talking To Your Lender – If you contact your private loan lender and explain your current situation, there is a great possibility that they will work with your, and cater a payment plan that geared more to what you can afford. This can be a great method as lenders want you to pay back the loan and not discharge, so they will often times take extreme measures to keep your business. This can include your payments being reduced or stopped for a while, but will consist of accruing interest during that time.
  • Consolidation – Consolidation of your loans is another great option to consider to avoid filing for private student loan bankruptcy, even if you have one loan as consolidation requires at least one loan. What consolidation does is stretch out your repayment term to as long as 25 years, which will reduce your payments, as they know you will end up paying more in interest over the life of the repayment, but once you are able to pay more you can usually do so without penalty and get out of debt faster. One thing to keep in mind is that you can get lower interest and better terms with good credit, which you either need to have good credit or find a cosigner who does.

 

Category: Student Loan Bankruptcy Information

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