How do I know bankruptcy is right for me if I have student loans?
Student loans are devastating for many consumers, and what student loan debt really means for graduates is commonly misunderstood. It’s not uncommon for graduates or former students to find themselves confused about what their loan debt means. It’s not affordable. It’s not quick to pay back, and it can prevent consumers from buying a home, obtaining a job, and even qualifying for a loan. Student loan debt is devastating, and many people find themselves turning to bankruptcy to erase their debts. Unfortunately, this doesn’t always work.
Bankruptcy Doesn’t Automatically Discharge Student Loan Debt
If someone is living with student loan debt and drowning financially, they might assume they can file for bankruptcy and handle their financial situation this way. Unfortunately, this is not the case. Federal student loans are government-backed loans that cannot be discharged in bankruptcy. Not all private student loans are discharged in bankruptcy, either.
It’s a personal situation for every consumer. Sometimes a debt can be discharged. It depends on the individual case of each person filing for bankruptcy. While it’s easier to discharge debts such as credit cards and other loans, student loans are a different story. They’re not easily dismissed, and sometimes consumers find there are other, easier, and more affordable ways to save money on their student loan debts.
Statute of Limitations
If the student loans a consumer carries are private, each state has a statute of limitations on how long a creditor can try to collect the loans. The laws are different in each state, and that means sometimes the statute of limitations ends sooner in one state than in another. What does this mean? This means a creditor holding a private student loan can try to collect the loan amount once you default on payments. If the creditor allows a collection agency to buy the loan, they can sue.
For example, a person who lives in a state with a five-year Statute of Limitations has a student loan they stopped making payments on in 2011. A creditor sues them in 2017. The consumer can fight this because the loan is too old to collect on according to the statute of limitations. The loan can be completely dismissed, removed from a credit report, and erased if the consumer fights back after a lawsuit is filed. It’s cheaper, faster, and more efficient than bankruptcy.
Bankruptcy is an option for people who have debt, but it’s not always worthwhile if a consumer’s only debt is student loan debt. If a person has ample debt otherwise, it can be erased with bankruptcy and that makes it more of a bonus. Since student loan debt is so hard to erase in bankruptcy, consumers might find it’s not worth their time to do this and pursue other legal avenues instead. Consumers should speak to an attorney to discuss their options regarding bankruptcy before they make a final decision. It’s helpful to know what can be discharged, what can’t, and how to proceed.