Should you file for bankruptcy because of student loans?
“I am the only bankruptcy attorney I know who actively tells people not to file for bankruptcy because of student loans. I think bankruptcy is a really good tool in the right situation, but it’s not the only tool out there,” says bankruptcy attorney Jay Fleischman.
Filing for bankruptcy because of student loans or something else?
Why you may not want to file for bankruptcy for student loans.
If you’re one of the many who are collapsing under crushing student loan debt, a little guidance is in order – and filing for bankruptcy because of student loan debt may not be the right option. Jay Fleischman is a bankruptcy attorney with 22 years of experience helping people get into better financial circumstances. Jay’s practice focuses on student loan resolution and he serves clients through Consumer Help Central and the Student Loan Show podcast. Jay shares his perspective on the severity of the student loan crisis and whether or not you should file for student loan bankruptcy. He explains the difference between government and private student loans and why people choose private lenders despite the lack of security. Jay explains when your student loan obligation ends, the benefits of purchasing term life insurance to protect student loans, and how the current administration’s policies impact student loan borrowers.
Filing for bankruptcy on the subject of student loans
Jay’s take on the student loan crisis
- Many leave school with debts of $100,000 or more
- Forbearance can add “interest to interest.”
The difference between government and private student loans
- Federal loans offer many repayment options
- Private loans have no protection (“pay or die”)
The benchmarks that influence your student loan options
- Adjusted Gross Income
- Family size
Why filing for student loan bankruptcy may not be the best option
- Federal loans offer many protections and payment options
- In certain situations, bankruptcy can have a negative impact on you
- Student loans are not automatically paid off
- Must file separate lawsuit and prove undue hardship
- Not insignificant in terms of time and money
Why people take out personal loans despite a lack of insurance
- Federal loans do not cover college costs
- Closing the gap with personal loans
- Social Expectation “Must Go to College”
The pitfalls of private student loans
- 96% are subject to guarantor requirements
- No oversight, no interest rate cap
Why tuition fees keep rising
- Competition for the best equipment
- Sell lifestyle vs. education
How bankruptcy affects your credit score
- Chapter 7 remains in the report for 10 years
- Chapter 13 remains in the report for seven years
- Creditworthiness 18 months after bankruptcy is better than if you were over-indebted
- Forbearance and income-based repayments have no impact on creditworthiness
Why Your Credit Score Improves After Bankruptcy
- Don’t owe any money, you have more money available to you
- Opportunity to build new, good creditworthiness
When your student loan obligation ends
- Federal loans are repaid when the borrower or student dies
- Personal loans become probate debts that are paid from the proceeds or by the co-signer
The advantage of taking out term life insurance to protect student loans
- Personal loans default when the lender/guarantor dies
Jay’s insight into the impact of tax reform on borrowers
- The current administration is not friendly
- The Minister of Education has defused the protective measures
Jay’s advice for people with a lot of debt
- Don’t decide to file for bankruptcy just because of student loan debt
- If possible, pay consumer debt yourself
- Make sure your home is a safe haven if you decide to file for bankruptcy