Can Bankruptcy Discharge Private Student Loans?

Bankruptcy can’t eliminate federally guaranteed student loans, such as Stafford loans, but this rule doesn’t always apply to private student loans. A private student loan, in short, is a financing option for individuals who want to seek higher education and need support aside from traditional financial aid to achieve this goal.

Private student loans can replace or supplement federal loans and are a viable option for many people. Private student loans come with another advantage as well; you may be able to discharge these debts in the event of a financial crisis.

Does your private student loan qualify?

A variety of factors determine whether you can discharge your private student loan. For example, where you went to school may influence the outcome of your bankruptcy filing. If your school was not accredited, you may be able to eliminate school debt through Chapter 7 bankruptcy.

Flight schools are a common example of this situation. Many pilots get the education they require through unaccredited trade schools, accumulating massive debt.

When these students are unable to pay back their trade school loans, they may be able to discharge the debts through bankruptcy. Why? The loan technically wasn’t a “higher education expense.” In short, it wasn’t a typical student loan.

Other reasons your loan qualifies for bankruptcy:

  • You weren’t an “eligible student” when you obtained the loan
  • Your school doesn’t quality as an “eligible education institution”
  • You didn’t spend a portion of the loan on school-related expenses

Even if your loan appears to meet the qualifications for “higher education expenses,” you might be able to eliminate it through Chapter 7 bankruptcy, depending on how you actually used the loan. Consider this: you took out the loan to pay for school, but actually used a portion of it for other expenses. This portion of the loan may be discharged when you file for bankruptcy.

Only a qualified bankruptcy lawyer can help you understand your legal rights and options. Contact our Southern California bankruptcy law firm today for more information!

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