Should you file bankruptcy on student loans?
“I’m the only bankruptcy lawyer I know of who actively tells people not to file bankruptcy on student loans. I think that bankruptcy is a really good tool in the right situation, but it’s not the only tool out there,” says bankruptcy attorney, Jay Fleischman.
File bankruptcy on student loans or something else?
Why you might not want to file bankruptcy on student loans.
If you’re one of the many collapsing under the crushing student loan debt, a little guidance is in order—and to file bankruptcy on student loan debt may not be the right option. Jay Fleischman is a bankruptcy attorney with 22 years of experience helping people get into a better financial space. 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 take on the gravity of the student loan crisis and whether you should or shouldn’t file bankruptcy on student loans. He explains the difference between federal and private student loans and why people choose private lenders despite the lack of protections. Jay clarifies when your student loan obligation ends, the benefits of taking out term life insurance to cover student loans and how the policies of the current administration impact student loan borrowers.
To file bankruptcy on student loans topics
Jay’s take on the student loan crisis
- Many leave school with debt of $100K or more
- Forbearance can add ‘interest on top of interest’
The difference between federal and private student loans
- Federal loans have many repayment options
- Private loans have no protections (‘pay or die’)
The benchmarks that impact your student loan options
- Adjusted gross income
- Family size
Why filing bankruptcy on student loans may not be your best option
- Federal loans offer many protections, payment options
- Bankruptcy can work against you in certain situations
- Student loans not automatically discharged
- Must file separate suit, prove undue hardship
- Not inconsequential in terms of time, money
Why people take out private loans despite lack of protections
- Federal loans don’t cover cost of college
- Fill gap with private loans
- Societal expectation ‘must go to college’
The pitfalls of private student loans
- 96% come with guarantor requirement
- No oversight, no cap on interest rate
Why the cost of tuition continues to rise
- Competition for best amenities
- Sell lifestyle vs. education
How bankruptcy impacts your credit score
- Chapter 7 stays on report for 10 years
- Chapter 13 stays on report for 7 years
- Credit score better 18 months after bankruptcy than if carried debt
- Forbearance, income-driven repayment do not affect credit score
Why your credit score improves after bankruptcy
- Don’t owe any money, more money available
- Opportunity to build new, good credit
When your student loan obligation ends
- Federal loans discharged when borrower or student passes away
- Private loans become debt of estate, paid from proceeds or by cosigner
The benefit of taking out term life insurance to cover student loans
- Private loans go into default if borrow/guarantor dies
Jay’s insight into how tax reform may affect borrowers
- Current administration not friendly
- Secretary of Education has gutted protections
Jay’s advice for people with large amounts of debt
- Don’t choose bankruptcy for student loan debt alone
- Pay off consumer debt on your own if possible
- Make sure house safe haven if choose bankruptcy
It’s generally not a good idea to declare bankruptcy. The repercussions will stay with you for a long time.