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Private student loans and bankruptcy: Two good things to know

You may have heard that it is nearly impossible to get student loans discharged in bankruptcy proceedings. Generally, this is true, and there are more repayment options with federal loans.

However, private loans still come with wiggle room. Read on to find out more.

Statute of limitations

New Jersey gives creditors six years to file suit on loans. In other words, if your last private loan payment was six years ago, it is unlikely that your original creditor has the legal standing to pursue collections from you. The debt may still appear on your credit history and/or bankruptcy filing, but that does not mean you are still obligated to pay it.

Unaccredited school

Many schools, especially vocational and trade schools, are not accredited, and private lenders sometimes fall down on their due diligence to check on accreditation. And even if a school is accredited, it may not meet very specific requirements, or you were really not what is called an “eligible student.” You could have also used the money, or some of it, on things not covered under qualified educational expenses. You may be able to discharge that part of your debt.

In such cases, you may be able to file bankruptcy and wipe out these private loans. Chapter 7 bankruptcy takes only a few months and aims to eliminate unsecured debts such as credit card loans and private student loans. On the other hand, Chapter 13 retains many, if not most, of your debts, and sets up a repayment plan that tends to last five years. Chapter 13 might be preferable if you are battling to keep your home from going into foreclosure, or if you have enough funds to cover some of your debts.

Trying to get student loans, whether federal or private, discharged in bankruptcy proceedings is complex. If you have taken out a student loan, it is often a good idea to consult with an attorney to gauge the chances of dismissing it. 

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