Featured News 2014 The Act that Would Allow Private Student Loan Discharges

The Act that Would Allow Private Student Loan Discharges

At present, it is almost impossible to get private student loans discharged in a bankruptcy. The Private Student Loan Bankruptcy Fairness Act of 2013 set out to change that when it was introduced to Congress back in 2013. Some Congress representatives are still interested in the act, though it was never passed. If the act is resurrected, there may be a change in the future that private student loans will be wiped out.

Before 2005, bankruptcy law treated private student loans just like other unsecured debts such as credit card debts and medical bills. At this point, if you filed for bankruptcy, all of your student loan debts that were from private lenders would be discharged. There were a few exceptions, but this rule held for the most part for quite some time.

In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Congress lumped together private student loans and federal student loans. This means that if you want to discharge any of your student loans in bankruptcy, you will need to prove that it will cause you undue hardship to be able to pay them back. While this sounds like an easy thing to prove, the truth is that courts are very picky when it comes to facing these cases. Proving undue hardship can be a massive burden, and the courts only grant discharge in the most extreme cases.

At their core, private bankruptcy loans are unsecured debts. If the Private Student Loan Bankruptcy Fairness Act is passed, it would remove the special treatment that private student loans currently get in bankruptcy and put then on the same level with unsecured creditors. If the bill becomes a law, bankruptcy filers will be able to discharge private student loan debt in bankruptcy just like other unsecured debts.

While there is still hope for this bill the chances of it getting passed rest at only 2%. Thankfully, in March five more representatives joined as cosponsors and some optimists believe that the bill is gaining momentum. If you want more information about student loans, don't hesitate to contact us today for more information.

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