Category Archives: Student Loans

Can bankruptcy help with student loans?

Written by San Francisco Bankruptcy Lawyer, Jeena Cho

Can bankruptcy help with student loans? - This is a frequent question I get and a common situation. Most unsecured debts such as credit cards are dischargeable through bankruptcy. However, student loans, both federal and private have an immunity card. In general, student loans will not be discharged after bankruptcy. So, what should you do if you have too much student loans and do not have any realistic hope of ever repaying? There are a few options to consider.

  1. Contact the lender. Most student loan programs have either deferment or forbearance programs where you can temporarily suspend repayment of your debt. In my experience, private student loans either do not have such programs or makes it almost impossible for students to qualify for such programs. It’s important you reach out to the lender as soon as possible. Many of them will refuse to work with you once you’re in default.
  2. Go back to school. This may sound like a crazy idea but most student loans will allow borrowers to put the loan into deferment or forbearance if you go back to school and take more than a certain credit hour. Many local community colleges have nominal fees per credit and it may be one option to keep the student lenders at bay.
  3. File for Chapter 13 bankruptcy. Bankruptcy won’t get rid of student loans but it can stall the repayment. By filing for Chapter 13 bankruptcy, we may be able to lock you into a manageable repayment amount for up to 5 years. The downside? The interest and penalties (if the minimum payment is not met) will continue to accrue during your Chapter 13. It’s not a great solution but it may be the only one available to many people whose wages are being garnished or for those who are unable to work out a reasonable repayment amount. At the end of the 5 years, hopefully your financial situation has improved and you can make the full monthly payment. Otherwise, you can start a new Chapter 13 plan.
  4. Exploring “Hardship Discharge.” Student loans are dischargeable if you bring what’s known as an adversary proceeding in bankruptcy court. This is where you bring an action against the student loan to show that you have an undue hardship. In order to win, you would have to show that there is no hope of you ever being able to repay this debt. It’s an extremely difficult burden to meet and very few cases are ever granted. Additionally, you would have to pay an attorney to bring this action, which will also be very costly.

There is at least one legislation which would make private student loans dischargeable, which would be a welcomed relief to those who have overwhelming student debts.

Disclaimer: Unfortunately, it is impossible to give legal advice over the internet, no matter how well researched or written. Before relying on any information I give, contact a lawyer to discuss your particular situation. I am a San Francisco bankruptcy attorney. The information given is based on California law.

 

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Beware of Student Loans

By: Jeena Cho

I frequently meet clients who took out student loans to fund their education. Many of them share their regrets and feel they were too naive and young to understand the consequences of borrowing money so freely for the promise of a “better future.” We are all taught to believe the value of a degree and also told that borrowers will be able to pay it back. However, student loans can be debilitating and unlike many other debts, it’s difficult if not impossible to discharge.

Students need much more guidance and education about the cost of their education. My parents encouraged me to go to a state university for my law degree and in hindsight, they were right. A private law school would’ve cost approximately 4x as much as the in-state law school. Do I feel I’m making 75% less with my state degree? Absolutely not.

Student loans are not dischargeable in bankruptcy. Student loan is also defined very broadly. It encompasses all “obligation to repay funds received as an educational benefit, scholarship, or stipend.”

Before taking out student loans, consider the following:

  1. Is there a cheaper alternative? Consider going to a community college and transferring. You can also consider going to school part-time and working to pay for a portion or all of your education.
  2. Do your homework. Make sure your school is accredited - especially if it’s an online only school without an actual campus.
  3. Borrow what’s absolutely necessary. Don’t use student loan money to go on spring break or anything else not related to your education.
  4. Crunch the numbers. How much will your monthly payment be after graduation? Make sure you do your research and figure out what you can expect to make with your degree after graduation.
  5. Look into Federal loans before considering private. These often have better interest rates and will offer more options should you have trouble repaying the loan down the line.

What if you already took out too much student loan and have no real hope of repaying it?

  1. Call the lender. Most programs have a deferment or forbearance program.
  2. Consider going back to school part time at a local community college. Most student loans can be deferred if you attend school more than certain credit hours. Generally, community colleges are fairly inexpensive and it can be a cheap way to defer your student loans.
  3. Consider Chapter 13. Bankruptcy will not get rid of student loans. However, if you are being chased down by a zealous lender, Chapter 13 may be an option to keep them at bay.

Many student loan lenders prey on students who are probably too young to understand the consequences of borrowing from the future. Yes, student loan may be a way to build a brighter future, but it can also lead to ruins. I’ve seen it many times. Buyers beware.

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