A private student loan is a loan given to finance higher education. Its interest rates are higher than that of a federal loan. A federal loan is a loan that is given by the government. A potential candidate may qualify for a lower interest if he or she has excellent credit, and also qualify for a higher borrowing limit.
What Is Bankruptcy?
When entities with debt are unable to clear it, they seek relief of all or part of their debts. When one declares bankruptcy, the bankruptcy court can acquit them of their debt. Once the debt has been invalided, a creditor can no longer take action against the debtor.
A creditor cannot seize collateral or collect the debt. Not all debts however can be acquitted. Bankruptcy helps you not to lose your entire asset or savings.
If you declare bankruptcy, it may be difficult for you to get approved for credit in years. Some lenders, however, allow room for individuals who are experiencing difficult credit situations, and bankruptcy is one of them; so still you will be eligible for a loan.
Bankruptcy is considered a last resort for individuals undergoing financial hardship. It allows you to pay a portion of your debts or have them eliminated.
Private Banks Student Loan Debt
Private student loans can be offered by banks. Some of the qualifications for a private student loan likely include: you must have been enrolled in an eligible school, meet credit and income criteria, be able to apply with a creditworthy cosigner, intend to use the loan for education, and meet citizenship, age and education. Student loans are some of the loans eligible to file for a bankruptcy case.
The process to Getting Private Banks Student Loan Cleared Through Filing for Bankruptcy
To get a student loan obtained in a private bank cleared through bankruptcy, you must file an adversarial proceeding (AP). An Adversarial Proceeding is a lawsuit filed within the bankruptcy court. AP usually results in full trials before a bankruptcy judge. APs are different from normal bankruptcy proceedings.
To file an AP you need an experienced lawyer who has experience in such cases so that you get a favorable outcome. A favorable outcome depends on your effort in eliminating debt and streamlining expenditures.
The Brunner Test
In most courts in America, for your student loan to be cleared, you will need to pass the Brunner Test. Maine, Massachusetts, Arkansas, Rhode Island, Puerto Rico, Minnesota, Iowa, North Dakota, South Dakota, Nebraska, New Hampshire, and Missouri are the only jurisdictions where the Brunner Test is not the standard for determining student loan clearance eligibility.
The test consists of three parts to prove that:
- You must have justifying circumstances that create a hardship meaning that you can’t pay the student loan and still maintain a minimum standard of living.
- You have made a good faith attempt to repay the loan.
- Those circumstances are likely to continue for a substantial portion of the repayment term of the loan
Minimal Standard of Living
An indication that an individual meets physical, psychological, and social needs at a minimum and socially acceptable level.
If one is not living within the bare minimum but below it; this means that the person in question is spending more than they can earn. It means they are barely surviving.
Hardship Persists for a Long Duration Making One Unable to Pay Debt
It’s difficult to predict if a bad financial situation will persist for the remaining period of loan repayment. Some factors a court under seeing bankruptcy may consider including to determine how long the hardship persists are as follows:
- Serious physical or mental disability of the debtor or the debtor’s dependents which prevents employment or growth
- Poor quality of education received from an institution
- Lack of marketable or usable job skills
- Underemployment means they are working in a place that does not match their skills or needs
- The debtor’s obligations to care for dependents may be overwhelming
- Lack of, or limited education received
- A limited number of years remaining in the debtor’s work life to allow payment of the loan meaning old age or maybe a severe life-threatening medical condition.
- Unavailability of assets, which could be used to pay the loan
Good Faith Effort to Repay Student Loan
If one has attempted to repay their student loan that can be noticed and used as a defense for, they have shown good faith. Good faith is primarily measured by the debtor’s efforts to obtain employment, maximize income, minimize expenses and attempt to negotiate a repayment plan.
Whether your loan is cleared or not is dependent on the judge’s ruling.
Take note that federal student loans are easier to be cleared than private loans. Federal student loans offer more repayment flexibility compared to private loans, making them the better option.
The rates are even more favorable than in private loans. The need, however, for different individuals varies and that might be what determines whether you take a private bank student loan. A favorable factor for taking a private bank student loan is that you can start paying for it while still in school to ease the burden of paying in the future.