I have had questions about student loans bankruptcy from readers, and recently I saw an article about this subject as well. This may help a few of you with similar questions.
If you looked into the subject of bankruptcy before you borrowed money to go to school, that’s great – very responsible. For those of you who didn’t, I have a nasty surprise for you:
The whole idea of a student loans bankruptcy is almost impossible in reality.
Why? Because student loans can’t be discharged in a normal bankruptcy – they are the most difficult debts to discharge in any bankruptcy. Especially private student loans can have incredibly punitive terms for the student.
Let’s look at a few options. This is why the article I read was helpful. You’ll find the article here at Business Insider.
I’ll summarize the main points:
It starts with a question: Can you pay off your student loans with a credit card?
The author offers 3 reasons why it is a bad idea. These are:
1. Your interest rate will be higher
Not the real question, is it?
Most students want to get their loans paid off as soon as possible, and sometimes the lower rate is not the easiest to pay off.
2. You could be accused of fraud
...if you use the credit cards to pay off your student loans, and then declare bankruptcy.
This section of the article on a student loans bankruptcy suggests that you might reconsider whether doing this – paying off your loans with some kind of cash from a credit card makes a good risk – when you could be accused of fraud.
I have seen some student loan balances that would make anyone cringe! A few of those people might try anything to pay off their student loan debt.
3. The Last Answer: planning to go into bankruptcy is hard.
Not to split hairs, but few people would ever attempt to plan some kind of student loans bankruptcy. I don’t think anyone plans to go bankrupt paying student loans.
Likewise, students don’t plan to defer payment and capitalize interest until their balance grows to triple the original size.
I was a little disappointed. I expected more from BI. Luckily, the comments helped where the article let us down.
A few more nuggets were offered that might help.
For instance, paying your student loan directly with your credit card has been banned for some time. Living off your credit card while you try to pay your student loans is not off limits, though.
And another important one, you may do better under different chapters of bankruptcy, depending on your situation. For example, discharging all of a debt or debts is harder that discharging some of your debts. Also, remember I am not qualified for advice in these matters, so this is just information.
If you were to take the chance suggested by whatever reader gave the idea to Business Insider, you would probably need the advice of a professional, like a bankruptcy lawyer.
And by the way, if you go to a lawyer to ask about a student loans bankruptcy or a credit card discharge, or whatever, that visit will likely mark where your creditors will start looking at your financial decisions.
Good luck – a heavy debt burden can be a terrible thing. I hope you find more student loan relief.