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Chapter 13 and $120k in Sallie Mae loans - my studen loan will BALLOON in Ch13????

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  • Chapter 13 and $120k in Sallie Mae loans - my studen loan will BALLOON in Ch13????

    My wife and I are considering filing BK. I have seen a few attorneys and all say I likely will not qualify for Ch. 7, and they seem to want to steer me into a 13.

    I earn $140k / year. Wife does not work. 3 kids.
    We have 70k in credit card debt.
    $2200 mortgage
    $1000 / month in car payments
    and my student loan payment is $1000/month.
    I have no other marriages/kids/no other bizarre expenses to come up with...

    In my so cal jurisdiction, I believe the median income for a family of my size is in the $85,000 range. so I am way over. the stupid means test doesn't let me factor in my student loan payment of $1000... then the frickin test says I have $1000 "disposable" income... it makes no sense to me...

    so they want to put me intoa 13... but the payment they will setup, will NOT pay my creditors in full..and Sallie mae will have to be in the unsecured creditor pool.. so they are telling me that sallie mae will only get a small portion, mayber 1/2 what I owe them every month... which means at the end of my 5 year plan, assuming I pay of $60k in payments over the plan... my studen loan will go UP by $30k....

    but I can't pay off my debts because when you factor in my expenses, credit card minimums, student loan.. I have no disposbale income to pay it down...

    is there some way to get around this in a chapter 13?

    one lawyer suggested my wife and I get "separated" and file dual Ch. 7s....

    the whole BK system seems completely screwed up... I understand I can't discharge my student loans.. but then if they put them in the plan... and they can't be discharged,a nd they only get a small % of what is owed.. what is the point of doing a 13, when I'll wipe out one set of debt, only to take on a while bunch more... ???


    the only possible upside to a 13, is the lawyher sawy I could strip the $70k 2nd mortgage off my house... which would be nice.. but it still doesn't change the fact that my student loan would balloon while I'm in the plan... seems counterproductive..

  • #2
    You and your attorneys seem to have a solid understanding of the bankruptcy laws and how they would apply to your situation. I don't really see any angles that you and they haven't already covered. Unfortunately, lawmakers' decision to turn student loans into a non-dischargeable form of debt has led to a lot of irrational real-world results, just like the one that you have described. Basically your only options are the ones your lawyers gave you: go through with the 13 knowing that your student loans will grow, do nothing and continue to be unable to pay your bills, or utilize some fancy legal footwork, like the legal separation that one of your lawyers suggested. There really should be a "this defies common sense" clause in the bankruptcy laws, but there isn't.


    • #3
      Okay, the issue is more practical at this point...

      Basically, you need to focus on the problem, EXPENSES ARE too high. So the energy needs to focus on cutting expenses.

      DOWNSIZE, DOWNSIZE, DOWNSIZE. Let me go a little Dave Ramsey on you.
      Lose the car payments, they are your budget killer. Mortgage is a little high, but not unreasonable for your income, but you could downsize. (the mortgage is only 18.8% of your gross income, that is a VERY good place to be...unless it is interest only).
      A chapter 13 may be how you get your budget under control, but you are correct, the student loans may spiral. Generally, in a situation like this, I inflate the budget as much as I can so your chapter 13 payment is as low as possible, then you, the debtor, goes an a radical budget slashing exercise (after the plan is confirmed) to save money. So, you may have a $1,000 per month food budget, but no one says you actually need to spend $1,000. You take the difference, build a $5,000 emergency fund, and then apply the overage to your student loans outside the plan to keep the interest in check.
      Last edited by HHM; 05-30-2012, 06:34 PM.


      • #4
        Student loans can change one's strategy. If you search through my posts, you will find I was in a similar situation, high wages without the mortgage and kids. The short story: I finally convinced the guarantor to garnish my wages at 15%. This took a long time and there were a few judgments and wage garnishments prior to the SL folks getting the big picture. In the end, a bit of collection costs were tacked on and they eventually began a permanent 15% wage garnishment. I have an additional 10% wage garnishment available for other judgments. This is a hell of a lot better than 50% - 60% of my wages going to unsecured debt for five years in a BK 13, while my student loans grew at 8.25%interest per year. I would have paid off about $75K in unsecured debt, but my SL's would have grown by $30K - $35K. In my mind, the student loans should be paid first (they were guranteed federal SLs) and the other unsecured get the remaining disposable BK 13 funds. Now, I'm taking my chances with the debt collection scenario.

        In my district, it appears that IF you are in a 100% payback plan toward all other creditors who file a claim, then and only then can you pay on the student loans. There is no consistency across the country. Well you can't discharge SL's, especially if you have solid wages. I guess that is consistent.

        I always found it odd the while you cannot discharge student loans, they are not considered priority unsecured debts. As mentioned, very very strange.


        • #5
          The issue here stems from too much spending. You make alot of money so you figure you'd spend like a rich person. Anyways that's all in the past. I'd follow HHM's advice.
          Filed: 6-7-2010 341: 7-15-2010 DISCHARGED: 9/17/2010


          • #6
            yes... we spend too much money. i'll admit it. heck, at one point we had three cars! the thir being a total toy car.. that has been sold. we are cutting expenses.. but it still hasn't gotten us out of the negative. the credit cards spiralled so high, that now. we are "treading water". paying the credit cards minimums... the house, the cars, student loan... what is left over barely covers necessities.

            we don't eat out much anymore. maybe once a month we go to something cheap like red robin, islands, etc... to take the kids out... but no high $$ restaurants. maybe once a year I take my wife out for that for anniversary... but we've pretty much cut out as much as we can of realy frivolous spending... and now are looking at the only way to get out of debt woudl be to cut quasi- necessities.

            cut cable. i can live with that. i have to have a cell phoen for my job, and have a cheap plan, no data.. etc... so there is not much to cut in terms of cell phones, or other stuff like that.

            i could sell one of our cars and get a total beater..

            if we did a 13 plan, at he end of the plan, both cars woudl be paid off. if we coudl then NOT buy another one, and just drive the ones we have another several years.. we'd save bundles.

            our second is 650. the cars are 1000. the credit cards are at least 1500-2000. at the end of a ch 13, we'd be NOT paying almost 3600 in monthly debt. wow. that money coudl go into some serious investments/savings/etc. it would take five years to get there.. but i suspect if we try to just cut expenes on our own... and pay this down ourselves.. like do a dave ramsey thing and just live out of a cracker jack box and send every cent to pay debts, it woudl take a lot longet than 5 years, the second mortage would still be there, and it would really suck.. i'll admit, there are certain things I just don't wnat to get rid of.

            i don't want to lose my house.
            i don't want to sell our cars.
            i can live with going on a tight budget...but don't want to live like a pauper the next 10 years to ge tout of debt, if perhaps doing a 13 will allow me to wipe out even more debt over 5 years...and come out with a "clean slate'>

            mayhbe living on a ch 13 budget woudl be a good way to train my wife and I to live within our means too.


            • #7
              I know this is a old link but our lawyer told us if we paid on our student loans outside bk our case would be dismissed.


              • #8
                Originally posted by curiousbk View Post
                I earn $140k / year. Wife does not work. 3 kids.
                We have 70k in credit card debt.
                $2200 mortgage
                $1000 / month in car payments
                and my student loan payment is $1000/month.
                I have no other marriages/kids/no other bizarre expenses to come up with...

                In my so cal jurisdiction, I believe the median income for a family of my size is in the $85,000 range. so I am way over. the stupid means test doesn't let me factor in my student loan payment of $1000... then the frickin test says I have $1000 "disposable" income... it makes no sense to me...
                At $140K/yr gross, you have about $90K net, or $7500/mo. Your expenses for shelter & transportation are $3200 + whatever fuel & insurance are (maybe an extra $800/mo?). Food & clothing for 2 adults & 3 children can't be much more than $1500/mo. Medical & dental care (I presume you have regular insurance) can't be more than $500/mo. That adds up to $6000/mo. Sounds like you have at least $1500 in disposable income.


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