I get lots of inquiries from people that have their student loans in deferment status. They’re all asking the same thing: What do I do when my student loans come due? My answer is the same for most of them: Find a way to pay them, because for most people, student loan debt is non-dischargeable in bankruptcy.
One reason student loans are non-dischargeable is that it requires a lawsuit in the context of the bankruptcy to prove financial hardship. The second reason is that you must show a good faith attempt to pay the debts, which usually means you have to have been paying the debt. The third reason student loan debt is non- dischargeable for a lot of people I see is that they can pay their student loans, but they don’t have enough cash flow each month to pay student loans AND their credit cards, medical bills or personal loans.
Most people that I talk with about debt solutions are people that want to pay their bills, but they need a payment that they can afford. So, most of the time that I am being asked about student loans, the question is coming from someone that is current on some or all of their credit cards.
Quite often, people ask if they can use bankruptcy to handle their student loans so that they can get/stay current on their credit cards, medical bills and personal loans. Bankruptcy just doesn’t work that way. If there is not enough money to pay ALL your debts, then you should leave the credit cards, medical bills and personal loans for last because those can easily be handled in bankruptcy, if you get to a point where you need the tool of bankruptcy.
For one couple that contacted me recently, we are filing a Chapter 7 to get rid of all of the credit card that they have kept current for years. While they kept credit card debt current, the balance on their student loans grew – nearly doubled! I have another guy I’ve been speaking with that has $50,000 in student loan debt that goes into a payment status in about 4 months. He’s current on his credit cards, but that is going to change in 4 months. He’s not sure about bankruptcy, understandably so, but he’s losing sleep because he knows in 4 months he is going to default on all his credit cards that he has kept current.
You can be like Congress and “kick the can down the road.” However, at some point you have to “show up and settle up” with the student loan creditor. Why not tackle that problem before the student loan balance grows/doubles?
