How to File for Bankruptcy on a Private Student Loan

Private student loans generally are non-dischargeable in bankruptcy.

Debtors looking to bankrupt private student loans will have a difficult time doing so. In 2005, Congress passed the Bankruptcy Abuse Prevention Consumer Protection Act (BAPCPA). Prior to BAPCPA, private student loan debt was just as dischargeable as any other unsecured debt. However, Congress began to have concerns about how making student loans dischargeable would affect the student loan program as a whole. One fear was that students posing credit risks would not get access to life-changing educational opportunities. Now, debtors with student loan debt must convince a bankruptcy court that their student loans impose an undue hardship if they wish to bankrupt them.

Things You'll Need

• Experienced bankruptcy lawyer
• Bank statements
• Pays stubs
• Medical records (optional)

Instructions

1. Prove the student loan's negative affect on your standard of living. Before the bankruptcy court will allow a debtor to discharge her student loan debt, the debtor must first prove that paying the student loan will prevent her from maintaining a minimal standard of living for herself and her dependents. Pay stubs and bank statements reflecting income and expenses may be effective evidence. If, for example, paying your student loan would force you to take your child out of day care or fall behind on your car payment, the court may agree that the student loan prevents you from maintaining a minimal standard of living.

2. Establish that things aren't likely to change for you. The second thing a debtor must prove if she wants to discharge student loan debt is that her financial situation is not likely to change for a significant portion of the loan's repayment term. Prior to BAPCPA, students would complete their educations and then, before they could begin earning money, file for bankruptcy. Now, absent evidence of a disability or some other long-term barrier to additional work and income, it is very difficult to prove that things will not change in the future.

3. Show the court that you've tried to pay the loan. The last thing a debtor must convince the court of is that she made a good faith effort to repay her student loan. Taking a half-hearted approach to student loan debt will most certainly hurt a debtor's chances of having her student loan debt forgiven. The court will view evidence of such conduct as reason to deny a debtor's request.

Tips & Warnings

• Bankruptcy courts are reluctant to forgive student loan debt. Find an attorney in your jurisdiction who has experience presenting these types of cases to the court.

References

• Dick Durbin: Durbin, Cohen and Others Introduce Legislation to Restore Fairness in Student Lending
• FinAid.gov: Bankruptcy and Financial Aid
• United States Bankruptcy Court Northern District of West Virginia: In re Mason
• FinAid.gov: Brunner v. NY HESC