Student Bankruptcy in College

By:  Daniel Gershburg

While I have written about this topic before, I nevertheless wanted to write a post to make clear two certain points.  

The first point is that, with very very very limited exceptions, student loan debt is NOT dischargeable.  I have been receiving numerous emails from students wanting to know if they can discharge their student loan debt and get a “fresh start” if they do not find a “decent” paying job when they finish college.  The answer is typically no.  You would really need make to showing of an undue hardship in order to qualify to discharge your student loan debt.  Bank on the fact that barring a very severe financial crisis you will likely not be able to show such a hardship.  The lesson, as cliche as it sounds, is to never borrow more than you need.  I say this from experience.  My debt in law school was tremendous and looking back I could have been more responsible with managing the law school debt.  Do not put yourself in the same position.  

The second issue I wanted to touch upon is Bankruptcy fraud.  Its more of a serious issue than you may think.  In previous posts I have always said that Bankruptcy Trustees and credit card companies are not involved in some vast conspiracy to stop you from filing Bankruptcy forever.  Usually they will not even bother to file any claims in Bankruptcy court.  However, if they see suspicious activity they will in fact retain counsel and cause problems.  What would suspicious activity classify as?  That would be purchasing a flat screen tv for $2000 immediately prior to filing for Bankruptcy.  Or going to Europe with your friends on the old Amex about 2 months before you file for Bankruptcy.  In other words it is debt that you have no intention, or could not possibly pay back, when you made the purchase.  It’s a pretty stringent standard but one to absolutely keep in mind.

Filing for Bankruptcy in college is the same as filing for Bankruptcy anywhere else.  So long as you really hit a tough patch in life, you should be ok.  However, if you are doing this to escape legitimate debts or you racked up the card and now think you’re going to get away free and clear, its best to think again.  

 

Daniel Gershburg Esq., is a Bankruptcy & Real Estate attorney serving a diverse clients in Brooklyn, Queens, Manhattan, Staten Island, Long Island and Westchester. Mr. Gershburg has given lectures and presentations to both attorneys and the community at large surrounding Bankruptcy and financial advocacy in the New York City area. Currently he is working on his first book giving practical advice about repairing troubled credit and how to improve credit post Bankruptcy

  • http://www.nationalstudentloanscentre.com/ Student Loan Compounded

    Student loan compounding and capitalization laws or by vendor?
    Hi,

    I'm trying to do some what if analysis. I remember in the entrance counseling for plus loans seeing something about interest accruing for plus loans, but not having it capitalize until the end of the “in school full time deferment” period. Is this the case for plus (or unsubsidized Stafford) loans? If not, do the vendors decide how when the interest is capitalized? Similarly, are there laws determining how often interest is compounded? I would assume that compounding, accrual, and capitalization schedules would be in sync, but in the first case they obviously aren’t.

    Basically, for the following examples, are they all legally possible (I’m using 10% interest for ease of calculation)? Which one would be the safest bet for financial planning?

    1) 10K Loan taken at beginning of year 1. Interest accrues but isn’t capitalized. At end of year 3, the interest is capitalized and thereafter the balance of $13K is compounded monthly
    2) 10K Loan is taken at beginning of year 1. The interest begins compounding immediately (or after 60 days w/e the law is) at some undetermined rate, set by the lender, perhaps continuously.
    3) 10K Loan is taken at the beginning of year 1. The interest begins compounding immediately at some federally determined rate.

    I ask, because the student loan calculators seem overly simplistic (they don’t seem to have a place to put in number of years of deferment, they don’t seem to have a compounding frequency input). I’d like to know if these calculators are reliable and/or if there are any that do take all of these factors into consideration as they are actually prescribed by federal law.

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