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Federal Student Loans: Chptr 13, Chptr 7 or do Nothing? What happens in Default?

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  • Federal Student Loans: Chptr 13, Chptr 7 or do Nothing? What happens in Default?

    Here is my situation.

    I'm a U.S citizen divorced by an English court in 2003 from my American ex-wife. As part of the divorce settlement, I was forced to take over her student loans. They are consolidated and we are both co-signers on the loan. At the time, the balance was around $180,000. She is an RN with a master degree in Nursing Science, but was not working at the time of the divorce. Subsequent to the divorce, I paid $60,000 toward the loans. In 2003, I left England and moved to Costa Rica. In 2005 I started deferring the loans as I had been paying them from my savings and my savings was gone. In 2009 a fire destroyed by restaurant business (I was a minority owner with my girl friend). Now, I'm broke and I had stopped making the deferment requests after the fire as I realized I am never going to be able to pay them off.

    I have done some research on hardship discharge, and I'm aware of the two tests (Brunner and Totality of the Circumstances). From what I read, if a court applies the Brunner test, it is almost impossible to win discharge. Totality there is a chance). I have not lived or worked in the U.S. since 1999. I have no assets in the U.S. I don't plan on returning to the U.S. (other than to visit family) for the next 5 to 10 years - if ever). All the student loans were originated by my ex-wife (who now makes a 6 digit salary back in California). I passed the bar in California, but no longer have any connection to the state. In addition, I would have to come up with about $3,000 to reinstate my bar status as active, plus complete additional CLE classes at additional cost. I'm broke and don't even have a bank account. In addition, I practiced International Project Finance. I am unemployable as a lawyer other than any lawyer just leaving law school.

    In addition to this, I have a family in Costa Rica. The mother of my son is not a U.S. resident and doesn't wish to live in the U.S. Therefore, if I were to return to the U.S. I would have to leave my son. The average Costa Rican salary is around $600 a month.

    I have no other debt. The outstanding balance is around $128,000. I am currently in default as I haven't asked for another deferment.

    Here are my questions:

    1. Is there any chance of having my federal student loans dismissed in either Chapter 7 or Chapter 13? I would file in CT where my family lives. Does anyone know what test the 2nd District applies (Brunner or Totality of the Circumstances)? If I'm going to apply for a hardship exception, which is recommended).

    2. As a lawyer, can I file my own bankruptcy petition? As I mentioned, I'm broke and don't have the money to pay a lawyer to do it.

    3. The Student Loan Servicing Center states that my loans can be directed to private collection agencies. With no assets in the states (or anywhere else), this isn't much of a threat, but I wonder how this works. Does the federal government wait for you to produce some assets that "wakes up" their collection department. Does anyone have experience dealing with them in this regard?

    4. Two other options are: 1) my ex is a co-signor on the loan. Should I remind them of this? This would create a claim for her against me based on divorce settlement (from an English court), but perhaps that can be discharged in Bankruptcy?; or 2) see if I can start deferring the loan again and hope for a change in the law.

    All responses are greatly appreciated.



  • #2
    Hi Firebug- I have no answers for you personally, but thought I would welcome you to the site There are some very VERY knowledgable people who contribute to this site so keep your eyes open for some advice and suggestions. Good Luck to you!
    My kids better not put my FICO score on my headstone~ (quote by dspii)


    • #3

      Thanks. I continue to read through the post and I have already learnt more. It appears that I would have to have an adversary proceeding. My next question is whether that is something I can petition for myself (since I am a lawyer) or would I need a bankruptcy specialist? Anyone?


      • #4
        I believe you can do it yourself. What type of attorney are you? Are you familiar with Bankruptcy laws?
        My kids better not put my FICO score on my headstone~ (quote by dspii)


        • #5
          Maybe what you should do is talk with a bankruptcy specialist (they usually give you a free consult) gather information from that attorney (get all your questions answered) and then petition on your own. Many people here have filed pro-se... I am not sure why you couldn't as well......
          My kids better not put my FICO score on my headstone~ (quote by dspii)


          • #6
            Thanks for the advice. I was a finance lawyer. I haven't practiced since 2002. Nevertheless, I would think I could handle the adversary proceeding. With no other debt, this will tell me all I need to know.


            • #7
              I'd let them go into default if it were me. They would go after your ex and if she could she would have to get an English court to get a judgement against you, not sure how that would work. Might work if you were in the US but don't think it would matter all that much in Costa Rica, especially being a civil and not criminal matter. Your ex would be back on the hook for the student loans, the loan companies don't care about the divorce decree and in their opinion much easier to collect from her and not from you. On a moral note, how much of the $180K was yours?


              • #8
                Do you know for sure whether your loans are all federal? could some of them be private loans? Perhaps law Access?


                • #9
                  BioTech: All but about $20,000 is hers. She had about $75,000 in school debt when we met which she had never paid on. She then incurred debt for her undergraduate degree and also her BSN degree after we were married. The $20,000 was money that I borrowed while I was in Law School (and she in her nursing school) for us to live on. Therefore, 50 of that should be hers as well.

                  Blackdog: As I mentioned above, some of the debt was private school loans, but they were consolidated under a federal program.

                  Thanks for the help.



                  • #10
                    I'd let them go into default and let the ex deal with them. If you're not going to be working the in US for a while I'd not worry about it.


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