I have a question for a friend (I've already had my day in BK court). I have a limited understanding of student loans. My question: What does BK 7 do for student loans? Does it freeze the interest or do you still have to repay the whole debt. Second, does BK13 freeze the interest so that you pay the current balance including accrued interest, or does it allow you to repay principle only? Third, can a person file BK7 and then file BK13 after BK7 discharge? I know it is long and bizzare but it is the beginning of a scheme to help someone who is really in trouble with student loans and credit card debt. She was wanting to file BK7 on the CC debt and possible BK13 for the student loan. Suggestions??
In 99.9% of cases, filing Chapter 7 does nothing to affect student loans. They cannot bill you between the time of filing and the time of discharge (3-4 months usually), but interest will accrue and once the BK is discharged, they can and will collect again. In a Chapter 13, the student loan payment is lumped in with the other creditors until it is discharged. Once discharged, she would still have to pay the rest of the student loans. I would talk to a BK attorney in your state. It's likely she would just file a Chapter 13. It's possible, however, that the trustee could say she doesn't have enough income to fund a Chapter 13, which would force her into Chapter 7. There are many student loan repayment options these days, including income contingent. Form what little you've told me, I would either file Chapter 7 and then pay the student loans back on income contingent after discharge or file Chapter 13.
Thanks AtlantaGA Where would I find more info about this income contingent? BTW, she is already having her pay garnished with regard to the student loan. I don't know if that makes a differance or not.
She can check with her loan provider on repayment options. You can also check out the Department of Ed page. She should consolidate, if she hasn't already, while the rates are low. Either BK (7 or 13) should be able to stop the garnishment, at least temporarily, though in some states the Chapter 13 payment is itself garnished.
As a follow up, www.financialaid.com is a good place to check out. If she has any Direct Loans, then I suggest consolidating through http://www.loanconsolidation.ed.gov/ If she's already consolidated, then she needs to call her servicer and play let's make a deal to change repayment plans, try to get current and stop the garnishment.
as far as repair credit goes, im new, however student loans. thats another subject. the first thing to do is consolidate the loans, this will bring them current. once current you will have a new inquiry on your credit report and can now fight the old negative. if your having problems paying them tell the new consolidation company your unemployed and deffer them this will by you some time. yes you will still have to pay interest, however you will have consolidated them at a rate of around 4.5. and if you know anything 4.5 is nothing and to be honest you can keep them deffered for ever. yes. the balance will get bigger but who cares itll show up on your report as deffered, which is a positive. as for the bk. my recommendation is before you jump of the cliff take what remaining credit you have left and pay off your student loans. you are basically swaping the name on the debt. student loans are not discharge able. while who ever you swaped the debt with is. there is no difference on going bankrupt for 10 grand or 100 grand
If you do borrow a bunch of money to pay down your student loans, it will be at least 6 months before you can file BK. Otherwise, it could be ruled bankruptcy fraud and/or that portion of the debts could be ruled undischargable in ANY bankruptcy.
Thanks for the info! I'll pass it on and see what happens. BTW, she is retired and the garneshing is actually out of her SS. Sucks because she has spent 20 years working for gov. social programs. So much for public service.
