Filing Bankruptcy on Private Student Loans: A Comprehensive Guide
Filing for private student loan bankruptcy can be a daunting process filled with queries and uncertainties. This article will provide a comprehensive guide on the subject, helping you understand if you can file bankruptcy on private student loans.
Understanding Private Student Loans
Private student loans are funds borrowed from private financial institutions to finance one’s education. Unlike federal student loans, these loans are not backed by the government and often come with higher interest rates and less flexible repayment options.
The Dilemma: Can You File Bankruptcy on Private Student Loans?
The simple answer is, “Yes, but it’s complicated.” The process is not straightforward due to the stringent legal requirements involved.
The “Undue Hardship” Test
In order to discharge private student loans through bankruptcy, borrowers must prove that repaying the loan would cause “undue hardship,” which is a challenging task.
The Bankruptcy and Insolvency Act
According to the Bankruptcy and Insolvency Act in Canada, student loans can be included in bankruptcy if they are more than seven years old.
The Seven-Year Rule
If your end-of-study date is more than seven years ago, your student loans can be included in your bankruptcy. It is crucial to check this date with your loan provider.
The Confusion Around the End-Of-Study Date
The end-of-study date can be confusing, especially if you have returned to studies since the initial loans were obtained. Recent court decisions have held that the ‘clock’ does not reset on a student loan if the borrower returns to school later on.
The Five-Year Rule and the “Hardship Provision”
If your student loan is less than seven years old but more than five years old and you file for bankruptcy, you might be able to apply for the “hardship provision,” which is another way to discharge your student loans.
Co-signed Private Student Loans
If there is a co-signer involved in a private student loan, the co-signer would still be responsible for the loan after the primary borrower files for bankruptcy.
Other Factors to Consider
Other important aspects to consider include the impact of bankruptcy on your credit score, the cost of filing for bankruptcy, and the emotional stress involved in the process.
Seeking Professional Guidance
Due to the complexity of the process, it is advisable to seek professional guidance from a Licensed Insolvency Trustee. They can provide you with personalized advice and help you navigate the bankruptcy process.
In conclusion, while it is possible to file bankruptcy on private student loans, the process is intricate and requires careful consideration and professional guidance. It is essential to evaluate all your options and make an informed decision that is best suited to your financial situatio
