If you can show undue hardship or that your loans are really not “educational loans” as defined by the bankrupty code, then can you file on them?

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If you can show undue hardship or that your loans are really not “educational loans” as defined by the bankrupty code, then can you file on them?

I need someone to help me with this situation. The loans in question are private student loans not federal student loans.

Asked on November 19, 2012 under Bankruptcy Law, Michigan

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

If the loans are not in any way government loans--which includes not being either government-backed or -insured--you should be able to discharge them in bankruptcy. The restrictions on discharging student loans apply to government-linked loans (since the government, which created the bankruptcy rules, wants to make sure it gets paid).

If they are either government-backed or -insured, as you note, you would need to show extreme hardship to discharge them. This is almost impossible: the statistics I've seen indicate that less than 1% of people successfully do this. Extreme hardship is basically that you are not making enough as it is to live on, even the most modest life (no thrills), but also that there are no reasonable or appreciable prospects of your economic situation improving. That's the trap with student loans--if you took out the loans to get a college or graduate degree, it's very hard to show that said degree will not give you some opportunity to earn more money.


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