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Dealing with student loan debt after a co-signer passes away

It’s no secret that student loan debt is a prominent credit issue today. In fact, it is arguable that the amount of student loan debt in America is outpacing credit card debt. This is likely because a greater number of students are taking out loans from private lenders.

When these loans are co-signed by parents (or even grandparents) they can come with some hidden responsibilities. For example, many borrowers may not know that a lender could require a loan to be paid in full immediately if the co-signer passes away. In fact, this has grown to be a common complaint lodged with the Consumer Financial Protection Bureau, the agency created through federal legislation stemming from the financial collapse of 2007.

Lenders may feel as if a co-signer’s passing may be the best opportunity to collect on the outstanding loan, since the person may have insurance money that can pay off outstanding debts. Nevertheless, it can adversely affect loved ones who are still dealing with the loss; and let’s face it…it simply is in bad taste to do such a thing.

The president and CEO of the Consumer Bankers Association insisted that none of its member lenders have required outstanding loans to be paid immediately when a co-signer dies; especially when the borrower has been making timely payments.

Fortunately, borrowers have a number of protections available in these situations, even though bankruptcy is a notoriously difficult process to discharge student loan debt. Eliminating student loan debt involves a separate process, called an adversary proceeding where the borrower has to show that he or she qualifies for a discharge in this regard.

In the meantime, questions about dealing with student loan debt should be directed to an experienced bankruptcy attorney.

The preceding is for informational purposes only and is not legal advice. 

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