Student loans are difficult to discharge in bankruptcy. A person must be able to show that payment of student loans poses an undue hardship on the debtor and the debtor’s dependents, however, few are able to pass the test required to prove they are worthy of consideration.
However, recent developments may help those who have taken loans from private lenders. The Second, Fifth and Tenth Circuits Courts have joined in ruling that a private student loan is NOT an obligation to repay funds received as educational benefits and may therefore be dischargeable. Although the ruling does not apply to government funded or backed loans, many private borrowers may now be able to discharge huge amounts of private student loan debt through bankruptcy.
To understand what may or may not be dischargeable, we can look to the court’s view of what are NOT dischargeable debts: (a) loans made with government involvement; (b) requirements to repay grants and scholarships (e.g., arising if the student fails to comply with the terms of a scholarship); and (c) private student loans that meet IRS guidelines that might render them tax deductible. But of more interest to the many seeking relief, the loans that MAY BE dischargeable are private loans that do not meet the IRS criteria and are thus potentially dischargeable in a bankruptcy proceeding.
For those who are struggling with student loan debt, recent developments are worth looking into to see if you qualify for debt relief. Certainly, knowing what debt is dischargeable in bankruptcy can be confusing so it is important to work with an experienced chapter 7 and 13 bankruptcy attorney who can help you determine whether bankruptcy is a good strategy for your difficult financial situation. Contact Illinois student loan bankruptcy lawyer Charles Covey today to learn more about the differences between Chapter 7 and Chapter 13 at 309-674-8125.
