Recently I met with some clients who discussed their debt and asset situation with me. I reviewed everything, thoughtfully considered their options, and gave them my recommendations. Then, as they were about to leave, they laid a bombshell on me. “We owe about $150,000 in student loans, but we know bankruptcy can’t do anything about that.”
Ahh, not quite.
I wanted to reconsider everything that I had just told them in light of the new facts. How much did they owe in student loans? Were any of them co-signed? Were they Federal loans, private loans, or some combination of each? Are you in default?
Once I found out that they owed almost $90,000 and the loans were co-signed, I was able to devise a Chapter 13 bankruptcy Plan that included the student loans as part of a consolidation that enabled the clients to cut their monthly debt payments by about $750.00 per month.
Do You Have Student Loans?
Do you owe a lot of money to student loan creditors? If they are all federal loans, you should be able to work out a reasonable payment plan. Many of my clients start with studentaid.gov and are able to find one that works. If you are not able to afford the payment even after working with them, here is some information that applies to the private loans.
Our clients at Steidl & Steinberg are often exasperated after attempting to work out reasonable payments. One of them, who feared losing her income tax refund to the student loan creditor after she defaulted, said, “I told them I couldn’t afford $800.00 per month, but they said that was the minimum they would accept.”
We might be able to do better.
We would have you consider using Chapter 13, a reorganization bankruptcy plan, to tackle the student loans. Here is how that helps.
Many Chapter 13 reorganization payment plans are not based on how much you owe, but on how much money you have available to pay. Let's say, after a review of your financial situation, we determine that you only have $150.00 per month available to pay on the student loans and credit cards. Let’s also suppose that you either own little in assets or that the things you own are highly encumbered by mortgages and/or car loans.
In this situation, you might only have to pay the Court this $150.00 per month that you have available, plus your mortgages and car payments, for up to five years. And that amount may hold whether you owe $50,000, $100,000, or $150,000 on the student loans.
What happens at the end of five years? You will still owe on the student loans, in most cases, but at least you will have survived the five years because your payments were affordable. Five years from now, you would hope to be earning more money and have less debt so it will be much easier to afford a new payment on the student loan balance.
If you owe a lot on your student loans, you owe us a call or an email so that we can discuss some solutions.