You may be able to toss out private student debt - here's how
Image Source: Flickr User Eric Kilby
If you’ve heard that student loans cannot be discharged in bankruptcy, that’s not true in many cases. What is accurate is that federal student loans are much harder to unload – but private student loans are another matter entirely. While private student loans may not qualify for the same automatic discharge as other types of unsecured debt, there is a wide array of options for ditching this debt if you can’t afford it.
#1 Statute of limitations apply to private student loans
Federal student loans do not have a statute of limitation – they can follow you to your grave. But private student loans have the same statute of limitations as other unsecured debts. In North Carolina, these should fall under the promissory notes statute which is three years. That should mean three years from the date of your most recent payment, the debt is no longer enforceable – but a creditor can always try and fight that in court.
But in the strictest interpretation, if you made a payment on your private student loan on 1/12/2013 and never made another, the statute of limitations should expire on 1/12/2016. That doesn’t erase the debt, but it does take away the right of the creditor to sue you in court for the debt. If you are sued for a private student loan, it’s important to fight it in court and claiming the debt is expired is a valid defense.
#2 Bankruptcy can discharge certain private student loans
Even if the statute of limitations has not expired, bankruptcy may help shed unaffordable private student debt. There are three features of bankruptcy law related to private student debt that can help get these loans discharged:
- If the loan was not a “qualified education loan” which means if the school was not properly certified, the debt could be discharged. If the school wasn’t a Title IV school or the money helped to finance study abroad that was not approved by your college are just two of the many examples of circumstances that can help you plead a case for the discharge of debt.
- If the loan was not used for “qualified educational expenses” such as living expenses, prior year charges, computer purchase, or to pay other costs that are not included in the standard “costs of attendance” of an institution.
- If you were not an “eligible student,” the private student loan debt may be eligible for discharge. For example, if you borrowed to pursue a career as a pilot but you are catastrophically color blind, you can’t get a license to fly, so you were never an eligible student. If you are a felon and were pursuing a degree or certification for which your criminal record precludes you from licensing, that could also help get your debt discharged.
#3 Private student loan debt will fall off your credit report
If you cannot get your private student loan discharge in bankruptcy, the other option is to ride out the statute of limitations so that all legal options expire. And, in North Carolina, private student loan creditors should never be able to garnish your wages. Plus, after seven years from the date of your last payment, the debt should fall off your credit report as well. Federal student loans, however, linger until paid or otherwise discharged.
To find out more about how student loans – federal or private – may be discharged in bankruptcy, contact the Law Offices of John T. Orcutt. Call +1-919-646-2654 for a free North Carolina bankruptcy consultation at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.