BK & Student Loans - Makes No Sense

[GivenUp]

Just recently, I was told that if I file for BK, the student loan payments for me and my wife would not be included in the monthly expenses total. Say what? We will be paying $1,400 a month until we die and I can't include that $1,400 in my expenses? That has got to be the biggest load of crap I have heard. I plan on talking to another BK attorney to see if he says the same thing. Can that be accurate?

[BKOnce]

Yes. It sucks but true!... Blame it on your uncle SAM.

[WantToBeDebtFre]

It is wierd. I'm filing without my husband so his student loans are listed as expenses and mine are not. I was wondering about that too.

[GivenUp]

That has got to be one of the stupidest things I have seen from uncle sam. Pure idiots. Paying them back is one thing, but paying them back and acting like they don't exist is something entirely different.

What next?

1) Never dischargeable
2) Can't be included in monthly expenses
3) May be able to confiscate first born child

[WantToBeDebtFre]

lol, wouldn't be surprising!

[Boscoe]

It can't be part of your Schedule J for the means test? I find that hard to believe.

It has got to be allowed for calculation of the chapter 13 payment amount. Otherwise, there is NO chance of the 13 working......

[$$only4ever]

Every district is different. I have a Parent/Plus Loan. They filed a proof of claim and the trustee sends them a payment every month. My attorney also included the monthly payment in my expenses and the trustee accepted it, so this loan ends up with a double payment every month.

[danaf]

maybe double check with another lawyer in your area. doesn't sound right at all. it's something you cannot discharge and therefore has to be paid back.

[lrprn]

As $$ already said, there's a lot of variation between local courts and how student loans are handled inside Ch 13.

Since most student loan lenders place your loans into deferment when you file Ch 13, there's a strong tendency in most districts to not allow payments on student loans during Ch 13 to direct more cash to your creditors. Unfortunately deferment doesn't stop the interest on the loans from accumulating. This compounding interest adds a tremendous load to what is already owed when you finally emerge from Ch 13 at the end of 3-5 years.

Some local courts will allow student loans to be paid inside your Ch 13 plan as a priority debt, but typically the loans have to be paid in full within the time limits of your plan. With payments as high as yours are, that doesn't sound feasible for you.

Rarely you will get an understanding trustee who will allow you to continue making payments on your student loans like they were a secured debt, but unfortunately this is not the norm.

I know it's no consolation, but if your loans are federal, you only have to pay on them for 25 years. After that, whatever is still left is wiped out.

You can thank our 2005 elected Congressional representatives and senators for this insanity they created by writing into the bk law that all student loans must be repaid in full (except in extremely limited circumstances) but putting nothing in the law that gives Ch 13 filers a way to continue making payments on their student loans for 3-5 years while interest continues to pile up.

Write every one of your current congressional reps about this very unfair portion of the current bk law (a badly written law on many fronts) to keep this issue beeping on their radar.

[danaf]

oh, so this only has to do with 13 and repayment plan...?

then with a ch 7 can you include student loan debt in the expenses?

[treehugger1]

I'm not sure about BK 7, but LP is correct in stating her knowledge about what happens to student loans in a BK 13. They are not conisdered priority unsecured debt. As a result, many loans get set aside for the five-year plan of a 13 and can add enough interest at the end of five years to make the BK a wash! I hear that this can vary from one district to the next.

I would not be suprprised if student loans are not allowed for the expense calculation even in a BK 7.

One of the major issues for me not filing for BK is that I have $77K in student loans (consolidated at 8.25%) and...well you can do the math and compound this for five years. You will see that the compunded interest adds $37,453.81 to my loan!! Pretty damned funny when you consider I only have another $55k+ in other unsecured debt! LOL! Until they sort this mess out, I'm sitting on the side lines.

[WantToBeDebtFre]

I don't get it. My attorney told me that if I have to file Chapter 13 then I'll be able to pay off my student loans as a priority secured debt "on the dime" of my unsecured creditors.

[lrprn]

I don't get it. My attorney told me that if I have to file Chapter 13 then I'll be able to pay off my student loans as a priority secured debt "on the dime" of my unsecured creditors.

Remember there is variation between districts, local courts, even individual trustees on this issue, WTBDF. The law gives no direction to follow in this situation, so everyone is doing whatever they think is appropriate.

It looks like you are one of the few lucky 13ers living in the right district with an understanding trustee....count your blessings.

[CindyLou]

Treehugger,
Did you know that you can RE-consolidate at the new lower rate with a new company even though you have already consolidated? I'm not sure how much lower it would get your rate, but its worth a try. Give one of the other companies a call and see. I used Goal Financial. But you can call Sallie Mae or any other one....or give them both a call and see. Good luck.

[treehugger1]

CL,

I was not aware that I could RE-consolidate. The last time I checked, everyone I spoke with said this was not possible. If I could cut my 8.25% current consolidation to even 4%, my monthly payments would drop dramatically on the 20 year payback of $77K. I will definitely look into this! Thanks.

I have also been studying what happens when one defaults. It appears that on guaranteed loans, the true default time begins after 270 days. I am nowhere near default. It also appears that even if one does default, there is the possibility of "rehabilitating' a loan. This is essentially bringing it out of default by making timely payments for a fixed-amount of time.

I wonder if this still holds for consolidated loans. I consolidated my daugher's loans with mine. Do you know if the guarantee still attaches to loans when they are consolidated? I consolidated my loans from two different state guarantee agencies with Wachovia. They are serviced by AES (American Education Services.) I would think they are still guaranteed loans, no matter who holds them.

Thoughts?