Filing Bankruptcy On Student Loans

In recent years, filing bankruptcy on student loans has become a major concern for many collegians who find themselves unable to meet financial obligations incurred in pursuit of a degree. By the time the average individual graduates from a public college or university, they will owe as much as $15,000 to $25,000 in government funded financing, not including monies borrowed from private lending institutions. Depending upon what region of the country in which they are enrolled, tuition can range from $3,000 to as much $8,000 per year. According to the U.S. Department of Education, almost 5% of graduates default on education loans within two years after commencement. The high cost of higher education, coupled with a dismal post-graduate job market, has placed many students in jeopardy of financial ruin before they can ever begin what they hoped would be lucrative careers.

Student loan bankruptcy not only impacts graduates' financial futures, but it hits taxpayers in the pocket, too. Statistics indicate that the average taxpayer pays nearly $400 annually in taxes due to student loan bankruptcy court and administrative costs. Parents who mortgaged their homes or co-signed for federal, state and private funding may also be at risk of financial failure in the event of default. Many undergraduates fail to plan a fiscal future and campus life offers little preparation. In the collegiate environment, basic amenities like food, clothing and shelter are taken for granted, and credit card abuse is rampant. By the end of freshman year, undergrads may have received countless offers from major credit card companies to apply for "plastic cash;" and most of them take full advantage of the privilege. If you want pizza, just charge it. Need books for Biology 101? Charge it. And the interest just keeps adding up. But as soon as the lights go dim on the commencement stage, reality hits and the fledgling scholar is left with nothing but a sheepskin and soaring debt. A hard-earned degree but lack of experience will only net an entry level, low-paying job, grossly inadequate to pay the compounded interest accrued on financing an education over the last four to six years. Graduates may feel that the only recourse is to file student loan bankruptcy, in hopes that their debts will be discharged before any substantial income can be earned.

During the 70s, filing bankruptcy on student loans to avoid repaying federal lenders became a widespread trend. By 1998, the federal government changed the criteria for discharging education debts to help stem this fraudulent and costly practice. While one can empathize with college graduates burdened with tens of thousands of dollars of debt, the fact remains that federally-funded education helps pave the way to future profitable careers. In the court of moral judgment, debtors who embrace filing bankruptcy on student loans have an ethical duty to honor their contractual promise, or vow, to repay the lender. Ecclesiastes 5:5 admonishes us, Better is it that thou shouldest not vow, than that thou shouldest vow and not pay.

Since the government's 1998 ruling, individuals seeking eligibility to discharge federally-funded student indebtedness must meet three stringent requirements: (1) Demonstrate to the court that repaying such debt would place "undue hardship" on them and their financial dependents and therefore, jeopardize the ability to maintain a minimal standard of living; (2) Petition and prove to the court that they would experience undue difficulty in maintaining financial solvency due to the exorbitant amount of time it would take to repay educational debts based on current income; and (3) Show documented proof that efforts have been made to repay monies owed for at least five years prior to filing student loan bankruptcy. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 further restructured the criteria for non-dischargeable student indebtedness, making it even more difficult for individuals to file student loan bankruptcy.

Alternatives for college and university graduates seeking to relieve federally-funded loan debt are few. Individuals may consider education loan consolidation whereby outstanding balances for several notes can be combined into one monthly payment. Former collegians may also opt to file Chapter 7 bankruptcy in order to have other forms of indebtedness discharged through regular proceedings. This would help alleviate their overall debt and free some funds which may then be applied to non-dischargeable student loans. Unfortunately, Chapter 7 proceedings may adversely affect a graduate's ability to get future financing. Other alternatives include borrowing a lump sum from a bank or private lending institution to pay off outstanding education loans, or taking out a second home mortgage. Individuals may also enter into a repayment agreement with the U.S. Department of Education to settle defaulted notes. Bear in mind that the Education Department has the right to collect student debts by offset from Federal and state tax refunds and up to 15% of a federal employee's disposable pay, until paid in full. Repayment agreements should be honored to the best of the debtor's ability. One need not have a college degree in order to understand the serious nature of education indebtedness to the federal government. While filing bankruptcy on student loans seems to be an exercise in futility, there are alternative ways to find funding for repayment. A qualified financial consultant can help individuals determine the best course of action to relieve the burden of student loan debt and eventually enjoy the benefits of a good, quality college education.

Personal Loan After Bankruptcy

Getting personal loans after bankruptcy is certainly possible, but frankly it has to be likened to hitting one's head with a hammer to make an ache go away. Yet there are very imprudent people who think drinking a gallon of water ten minutes after almost drowning is a funny joke and will scoff at warnings to stay as far as possible away from a loan company and credit card. The other side of the coin is that there are companies that will sell triple decker cheeseburgers to people over four hundred pounds and lend Mt. Everest high interest loans to those who shouldn't be borrowing a shovel from a next door neighbor. But the world can be a crazy place and everyone seems to have a reason for doing that they do. So getting loans after bankruptcy is a bad idea for most people in that position but the deed can be done.

If a person yells the word bankruptcy in a room full of bankers, at least seven of them will have coronaries within a few minutes. It is the worst of the worst financial situations, not because it cannot be overcome eventually, but because the legal proceeding has a shelf life of ten years. That is a lot of time for something rotten to remain hanging around someone's neck. And painfully, the effect of such a financial smell is known by all who loan money to those afflicted with the odor. People can argue all day long if it is fair for those who have gone through such a devastating crisis to have the large "B" branded on FICO reports for ten years. Good, honest and hard-working folks have had to go through this ordeal, some through no fault of themselves and others because of poor judgment. But in both cases, getting personal loans after bankruptcy can be tricky.

In the case of chapter seven bankruptcies, the idea of getting a loan after the proceeding is a little strange. Chapter seven legal proceedings are borrowers who are finally captured by the creditors' posse and put their hands up in surrender. Despite what the TV lawyers say, chapter seven means that most of one's possessions, if they are extensive, are going bye-bye. In each state, the list of items that a person filing for relief can keep from the auction block is varied. In some states a person can keep saddles and horses, personal items and a four wheeler for each family member while in another state a television can get auctioned but a stove cannot. And a person's house, or at least most of its equity is fair game in most states. The point is that personal loans after bankruptcy are basically going to be unsecured loans because there is little or no collateral to offer.

In the world of personal loans after bankruptcy, the unsecured is the proverbial redheaded step-child. This kind of loan is the most expensive to get because if the loan defaults, the lender has nothing to haul away in a truck for repossession. This loan holds all kinds of risks for the lender and consequently the interest rates are higher than Kilimanjaro. Yet this is basically the only kind of loan besides a car loan that these wounded borrowers can get. To add insult to injury, a finance company will probably be the only entity willing to make a commitment to personal loans after bankruptcy and their prices to borrow money might rival the GNP of San Marino. This kind of loan truly is the last thing in the world that filer's for bankruptcy need.

The other type of personal bankruptcy available for those who find themselves surrounded by the posse is chapter thirteen. With this legal proceeding, those who are throwing up their hands in debt surrender are looking for a way to repay debt on their terms and not the lenders. In other words, longer payback schedules and less interest on the loans are the usual foundations for this legal filing. In many ways, chapter thirteen bankruptcy is very much like most debt counseling programs, which provide the lower interest side, making possible the payback of credit loans within five years if the debtor sticks to the program. But in debt counseling and in chapter thirteen, the debtor cannot open another loan account or the program is ended or the filing converts to chapter seven. It's ironic that a chapter seven filer may be eligible for personal loans after bankruptcy more quickly than the filers of chapter 13.

Actually, irony runs rich when talking about personal loans after bankruptcy. The very thing that was the downfall of most people filing for debt relief is the thing that can actually help them get their good name back over time. Credit reports will have the big scarlet "B" on the information, but small, unsecured loans that are faithfully paid back incrementally on time each month begin the restore the health and vitality of a very anemic financial condition. The question about personal loans after bankruptcy being a hammer to kill a headache really comes down to does the one holding the hammer know exactly where to hit in order to stop the pounding. And can a person who has probably failed for a long time to handle credit properly suddenly change his ways and start being responsible? The great prophet Jeremiah once asked, "Can the Ethiopian change his skin or the leopard his spots?" (Jeremiah 13:23a) The rhetorical answer is no, but with God all things are possible.

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