Student Loans and bankruptcy–the most dangerous debt

Student Loans and bankruptcy

Bankruptcy attorneys like to remind their clients that there is no such thing as debtor’s prison in our country these days. This is true–you’re not going to be locked up in some Dickensian nightmare because you can’t pay your debts.

But take heed my friends if you are about to sign (or co-sign) for student loans.

Student loans are non-dischargeable in bankruptcy unless extraordinary circumstances can be shown.
As I’ve blogged about previously, student loans are non-dischargeable in bankruptcy unless you can prove ‘undue hardship.’ Undue hardship means that you are prevented from paying your loans back because you are irreversibly disabled (mentally and/or physically) to the point that you cannot work and therefore can’t pay them back. And if you prove undue hardship, but had a co-signor, guess what? That co-signor is still obligated joint and severally for the full amount you borrowed.

It’s easy to borrow too much.
Typically I see loan balances for undergraduate work that seem somewhat reasonable. When I say reasonable, I mean that it’s conceivable that a borrower would be able to support him or herself and family while making those minimum payments because as a student in one of our state’s public colleges, not that much was borrowed.
But, I always get a little nervous before seeing the amount owed for graduate course work, or tuition at a private school. For some reason, student loan lenders love to lend money, and a lot of it. Because students undergo only minimal counseling before signing that dotted line, they borrow the maximum amount, and up until the Great Recession, were free to assume they’d be making enough to pay off the loans and still have enough to support themselves. (Student loan lenders will dispute me using the word ‘minimal’ but I stand behind the claim. I graduated from law school recently enough to recall the inadequate counseling I underwent. I had no idea how the amount I borrowed would translate into a minimum payment 6 months after graduation.)

It’s not unusual for a student at a private law school or medical school to borrow upwards of $250,000.00 before graduation. Guess what gang, if you owe your student loan creditors that much, your minimum payment on those loans will be something on the order of $1200-$1500 EACH MONTH for 20-30 years. That’s a mortgage payments for most of us.

Now, my mom always warned me as I was growing up, that there are very few Baryshnikovs in the ballet–meaning very of us are fortunate enough to find so much success that we (pardon the expression) defecate money. It took me a long time to really understand and accept the meaning of this expression. When it comes to money, one should plan for the worst and be happy when it works out better than you expected.

If you sit down and think about how many young college students and graduate students are signing that dotted line, assuming they’ll make enough to pay the piper, and then you think about the jobs market post Great-Recession, you’ll understand the scale of this problem.

There are many, many, Gen X, Gen Y and millennials who are on the train to be student loan-poor.

Check out this article published in the Wall Street Journal on February 13, 2010 about one such individual. She may not engender much empathy in you. She made improvident decisions and didn’t read the fine print when she got into trouble. But she also the same critical mistakes common to student loan borrowers while racking up the debt.

Don’t borrow too much. Don’t co-sign on student loan debt. Think about that minimum payment.

When and if you get up the creek without your paddle on student loan debt know that you will be sued, your wages will be garnished, you will be in a figurative debtor’s prison.

Call my office to set up your consultation for more information and advice about how I can help you in bankruptcy. I have a few tools up my ink-stained sleeves that can’t make the loans go away, but might help you allocate your resources to the point that you can afford to live.

Attorney Shannon McDuffie (404) 418-8879