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Bankruptcy could help with private student loans

On Behalf of | May 24, 2022 | Uncategorized

If you’re struggling financially because of private student loans and have exhausted your options to pause them or pay them down, you may be interested in knowing about changes in how those loans are handled in bankruptcy.

According to a New York-based federal appeals court, the United States’ Bankruptcy Code does prevent some kinds of debt from being discharged when a person goes through bankruptcy. In the past, federal and private student loans were largely unable to be discharged, but today, private student loans may be forgiven in bankruptcy.

The court stated that debts accrued as an “educational benefit” normally can’t be discharged, but private loans don’t fall into this category. The court believes that the term “educational benefit” refers to conditions grant payments, not loans.

Bankruptcy isn’t the only option, but it could help

Bankruptcy certainly isn’t the only way to get your school-related debts taken care of. You may have other options like deferment, refinancing or forbearance. You may also consider using a consolidation loan to help minimize what you’re going to pay each month, so you can free up more of your money and, potentially, lower your interest rate.

If you do believe that bankruptcy is the right choice for you, you may want to learn more about Chapter 7 and Chapter 13 bankruptcy. Both have the potential to help you minimize your debt. Chapter 7 bankruptcy is often used by those with low wages or that otherwise qualify based on the means test. It could help completely discharge your private loans in just a few months.

Chapter 13 has you repay debts over a three-to-five-year period, allowing you to see an end to the payments when you otherwise may not.

You may have several options to help you resolve private student loans

These and other options may be open to you, but you need to have a good understanding of your financial situation and get to know your legal options before you decide what to do next. Choosing the right way to handle this debt may help you walk away from it much sooner than if you continue to try to pay.

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