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You can file bankruptcy on private student loans and have them discharged as part of your larger bankruptcy case. Doing so means taking an extra step after your original bankruptcy case is complete. It means filing a specific type of civil lawsuit called an adversary proceeding (AP).
This extra step can make an already complex bankruptcy case even more complicated. A bankruptcy lawyer can bring familiarity with the law and bankruptcy proceedings to your case. They can take the confusion out of your situation and help you get the fresh financial start you need without the burden of unsustainable student loan debt.
What Are the Benefits of Filing for Bankruptcy?
For consumers, the primary benefit of filing for bankruptcy is financial relief. It can free you from most credit card and other unsecured consumer debt. Unsecured debt is not guaranteed by an agreement to relinquish property if the debt is not paid.
A bankruptcy lawyer will explain the difference between secured and unsecured debt and how it affects your case. They will also explain:
- The best bankruptcy chapter for you
- How to retain your home and car
- When the collection letters and calls will stop
In addition, filing for bankruptcy means you can avoid additional legal actions to collect debts. You can also address some difficult issues, including taxes and student loans.
How Do I File for Bankruptcy?
It’s your decision whether filing for bankruptcy could benefit your situation. Yet, many financial experts recommend filing for bankruptcy if you are currently saddled by crippling debt that far exceeds your income. The process, though, can be complex, requiring an astounding array of personal and financial information.
To file for bankruptcy, you must:
- Understand the varying bankruptcy chapters
- Choose the chapter that best applies to you
- Obtain, complete, and submit the required forms
- Comply with any required credit counseling
- Determine your bankruptcy filing fee
- Appear in your local bankruptcy court
If you’re unsure of how to navigate this process, you could benefit from hiring a lawyer to represent you. They can explain state and federal law, your rights, your creditors’ rights, and their likely responses to your filing.
How Do I Know if My Private Student Loan Is Eligible for Discharge?
According to Consumer Financial Protection Bureau (CFPB) information, it’s more complicated to get private student loans dismissed than public ones. Public student loans are funded by the government. Private student loans are funded by private funding sources.
This distinction means private loans are financed by a creditor, which can make it easier to include them when filing for bankruptcy. Types of private student loans eligible for bankruptcy filing include:
- Loans that exceeded the cost of attendance
- Loans to pay for education at unaccredited colleges
- Loans related to preparing for the Bar and other professional exams
- Loans associated with medical and dental residency programs
- Loans to a student who did not enroll for a minimum half-time status
A bankruptcy lawyer will review the details of your specific student loan and current financial circumstances to determine whether you can include this debt in your filing.
What Is the Adversary Proceeding?
Like all other debt in your bankruptcy case, your private student loan debt qualifies for discharge if it will create undue financial hardship. Its discharge is part of your adversary proceeding.
The adversary proceeding is secondary to your primary or main bankruptcy case. It is akin to a civil lawsuit and has a separate docket and case number from your bankruptcy case. It also has its own:
- Notification and filing deadlines
- Service of a written response
- Pre-trial hearings and conferences
Your lawyer will explain each step of this process, including how the eligibility criteria are determined and how your lawsuit will be settled, dismissed, or resolved at trial.
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Do I Need a Lawyer to File for Bankruptcy?
Bankruptcy is a complex process from beginning to end. When you are represented by a bankruptcy lawyer, they will handle the hard parts for you. Your lawyer will clarify your chapter selection and filing options. They will also streamline the process by handling the challenging parts for you.
What Are the Different Bankruptcy Chapters?
Bankruptcy can be filed under several chapters. According to Investopedia, to discharge student loan debt, you must choose either Chapter 7 or Chapter 13. Choose:
- Chapter 7 bankruptcy if you are an individual, partnership, or corporation. The trustee assigned to your case will liquidate your nonexempt assets, and the court will discharge all other assets. To qualify for Chapter 7 bankruptcy, your monthly income must meet specific guidelines. After your filing is completed, you can request a discharge of your private student loan debt.
- Chapter 13 bankruptcy if you are a current wage earner. With the support of your lawyer, you can outline a plan to repay some or all of your debt. Your repayment plan will be handled by a trustee who will determine what you can afford to pay on all debts, including private student loans.
If you are represented by a lawyer, they will determine the right chapter for you. Your lawyer will also file your bankruptcy petition, document your financial assets, and create a detailed list of your creditors.
Call for Immediate Help With Your Bankruptcy Case
Filing for bankruptcy has many benefits and can help you regain control of your financial life. You can even file bankruptcy on private student loans and get out from under seemingly insurmountable debt. Farmer & Morris Law, PLLC can help.
Get started on the road to financial recovery by contacting one of our consultation team members to discuss your potential bankruptcy filing today.
