Can I File Chapter 7 on Private Student Loans and Would It Affect the Cosigner?
Student loans are a huge burden, and most former students wish their student loans would just go away. Chapter 7 bankruptcy does make most unsecured debts go away, but unfortunately, you can only discharge student loans in very limited circumstances that most debtors do not have. If you are somehow able to discharge your student loans, your cosigner will be on the hook for the balance.
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Student Loans are Generally Nondischargeable
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Section 523 of the Bankruptcy Code provides that you generally can't discharge student loans. The term "student loans" includes certain qualified educational loans for educational programs that are more than a certain number of hours of course work at certain types of institutions. If you have standard student loan debt, however, such as private loans or federal loans for a two- or four-year program at a regular college or university, that debt falls under the generally nondischargeable category. If you can prove that your student loans are an extreme hardship and that your circumstances are so dire that you will never be able to repay them because you can never work again, you may be able to discharge the loans.
Some Loans Are Not Student Loans Under the Bankruptcy Code
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Not every loan you have for an educational purpose is a student loan for purposes of the Bankruptcy Code. If you borrow money to take a six-week class on bartending or trucking, for example, you may be able to discharge that debt because you may be able to show that it isn't student loan debt for purposes of bankruptcy.
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How the Discharge Works
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A bankruptcy discharge wipes out your legal obligation to repay debt. If a debt is nondischargeable, that means you must repay it, despite your bankruptcy. If a debt is dischargeable, unless the court ordered that you had to pay it back, you're no longer liable on the debt after you receive your bankruptcy discharge. The bankruptcy discharge applies only to you, and it applies only to your obligation. The debt still exists, and if another person is liable on the debt, that person is still responsible for the debt after your bankruptcy.
Cosigners
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A cosigner is someone who agrees to repay a debt for you if you default. If you have no credit or bad credit, a lender may require a cosigner to protect itself. If you don't make your payments, the lender can go after your cosigner. By cosigning the loan, the cosigner is vouching for you and agreeing to take care of the debt if you don't. If you have a cosigner on your student loan and you are able to discharge the loan, the cosigner will still be responsible for the balance.
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