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A large portion of consumer debt today comes from mountains of student loan debt that was accrued in pursuit of higher education. A common misconception is that bankruptcy fails to wipe out private student loans, but this is not necessarily true.

Under the rules of Chapter 7, discharging private student loans may indeed be possible under certain circumstances. Additionally, private student loans cannot be legally collected if they expire after the statute of limitations runs its course. For residents of some states, this can be as few as three years. Other states allow collections and garnishments for up to 15 years.

A lot depends upon the accreditation status of the school the student attended. Private loans to unaccredited schools generally are dischargeable under Chapter 7. Trade and vocational schools typically fall under these parameters, along with pilot flight schools where the loans can reach into six figures.

There are two factors under consideration when discharging the loans:

— The loans were intended for a “qualified higher education expense”;

— The school is not considered to be an “eligible educational institution.”

Private student loan qualifications that must be met include:

— Loans were made under nonprofit or government student loan programs.

— Were qualified as educational loans under the Internal Revenue Code’s section 221(d)(1) for attendance at eligible institutions of education as the Internal Revenue Code’s section 221(d)(2) defines them, as well as being incurred “for costs of attendance as defined in section 472 of the Higher Education Act.”

How the loans were used also matters. If they were used to pay for things besides tuition, books, equipment and supplies, those amounts of the loans aren’t protected under the law and might be discharged in bankruptcy.

It can get complicated, which is why it is always good to seek legal advice from an attorney familiar with all facets of bankruptcy laws.

Source: Huffington Post, “Can You Discharge Private Student Loans in Bankruptcy?,” Steve Rhode, April. 07, 2015