A common problem debtors have is determining how student loans will be handled when the debtor is already under financial stress. About the time that a debtor can no longer get another deferment, the debtor is running into other financial problems as well. Children are now born and they are expensive. After getting an education, the debtor has decided, wisely or not, to buy a home and start a family. If the debtor’s loan qualifies as a student loan, the loan will be nondischargeable under bankruptcy law. What qualifies as a student loan is not something that I will attempt to address at this time. Most people are aware that student loans are nondischargeable and only in the most dire situations will a student loan be discharged.

The student loan collectors are either threatening to garnish or garnishing the wages of the debtor. The debtor cannot make both the minimum payment on the student loan and pay their other bills. The debtor has no choice but to file bankruptcy and perhaps lose their home to pay the student loan off. I am not trying to judge what should have happened, only to state what is happening.

The student loan collectors do not care if you lost your job and now have one that pays much less than the one you had. The student loan collectors do not care if you have to give up your home in order to make payments on student loan. In fact, the only thing the student loan collectors care about is forcing you to pay more than you can afford. These collectors receive a portion of the amount collected as their pay and really seem to have no incentive to try and reduce your debt burden. Congress is looking at the situation, but, so far nothing seems to be getting done. This is not a Republican, Democrat or Independent issue.

You may want to ask yourself why student loans are never dischargeable when taxes are dischargeable? I think it has to do, in large part, with the fact that Congressmen and Senators who are making six-figure salaries seldom have to use student loans for their own children. While you are trying to manage your healthcare costs, the members of the United States Congress have wonderful benefits at a cost much lower than you and I can obtain.

A common strategy when student loans monthly payments are just too high is to file a Chapter 13 bankruptcy. With a Chapter 7 bankruptcy filing, the student loan collectors will only be delayed a little while until the Chapter 7 bankruptcy case is completed which will usually take 4-5 months. If you file a Chapter 13 bankruptcy case, the student loan collectors are forced to leave you alone so that you can pay your Chapter 13 trustee payments and pay other pressing bills. You can then come back and deal with your student loan obligations at a later time.

If you do not make interest payments on your student loan, the amount you owe will be higher when you finish your Chapter 13 case than when you began. The strategy may, however, work for you even if this occurs. While you’re in the Chapter 13 bankruptcy case, you may have gotten a better job or pay raises that would allow you to both live and pay off your student loans. If you have small children when you file, the normal daycare expense may no longer exist when the Chapter 13 case is completed. The children may well be in public school so that you can use the money that you are paying to care for the children while you work and apply it to the student loans.

Making decisions and strategy calls are not found in your bankruptcy handbook. This is why you need to hire a professional to help you make your financial plans. After all, this is your future and you need to make plans for your future.


About Nathan Davis, Esquire

Born in Charleston, South Carolina, Nathan Davis has been practicing law for many years. Mr. Davis has a wide variety of experiences having practiced domestic relations, criminal law, social security law having also practiced collection law in the past. This knowledge is helpful when someone needs to restart their financial life. The practice is now primarily bankruptcy and debtor representation work, but, Mr. Davis continues to also practice real estate law, trusts and estates and a general litigation practice. I believe that the most important part of representation is trying to leave you better off when the case is finished than when you started. Although I will do as my client directs, I will always tell you if I think that you are making a mistake. Bankruptcy is about a "fresh start". If you do not make changes in what you are doing, you will be doing what you are doing now in the future. There is no shame in bankruptcy or other steps that you may take to start your life over. Too often, people worry more about things than about themselves, their family or their future.
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