Private School Loans Should I Chapter 7?

[rbrown95]

I have about 55,000 in school loans from Sallie Mae (private, unsubsidized loans) about 8,000 in credit card debt and around two years worth of work on a thesis before I graduate. Would it be a smart idea to Chapter 7 or consolidate and just deal with the large payments? I don't have to start repayment until after graduation, but I am curious about bankruptcy now to start the clock so I can get credit sooner. From what I understand, bankruptcy stays on your credit record for 7-10 years... can anyone clarify the likely time period that I might have bad credit after bankruptcy? Also, I hear that it may be difficult to get a decent job with a bankruptcy on your credit record. I currently have great credit, just too much principle to pay back and I was wondering what my best plan of action would be... Any ideas?
Thanks!

[skyan]

I'm not sure I am understanding... Are you wanting to discharge your student loan debt in a CH7? Student loans are not dischargeable in bankruptcy. There are some really strict guidelines for undue hardship, but I doubt you'd qualify since you are still in school and have the potential to get and keep jobs. I don't know about how the consolidation process works when you are not yet in repayment status, so I cannot advise you on that. But I think I would hold off on filing a Bankruptcy. If you file now, you can't file again for 8 years. That's a long time, if you get into deeper debt within that time. We did a Ch7, 7 years ago, and had trouble again within 4 years. Mostly because we couldn't afford our student loans. But they are not dischargeable, so there was no where for us to go for relief when things went from bad to worse. Had we just hung on a little longer and not filed the first time, we could have filed when things got tougher. So, just make sure if you do file now, that it is because you have NO other options to handle your debt load.

HTH

[skyan]

I just re read your post and I just wanted to add, that if you have great credit, you might really want to try your hardest to prevent a BK. If you have really bad credit, BK can actually increase your score. It did for us. But, in your case, I think it will hurt your score. It takes about 2-3 years for the score to start rebuilding after a discharge. That's so long as you make EVERY payment on time.

As far as getting a good job... I haven't ever known anyone to have trouble getting a good job based on their credit report. I think though it would depend on the job. But for most jobs, employers don't bother pulling your credit report. I think if you were going into finance, maybe, or a position where you would be responsible for valuable items, etc....

HTH

[HHM]

FYI, Sallie Mae loans are typically not "private" student loans, so BK may not help. I think you are far to early to file BK. There are a ton of options for dealing with student loans, and like you said, you don't even need to make payments until 6 months after graduation and even then, you can defer for up to 3 years and consolidate every few years.

Look into other options.

[rbrown95]

Student Loans and Bankruptcy

Thanks for all the input guys... I still have some time to decide on bankruptcy so I won't make any rash decisions yet... I was under the impression that since the loan that I received is what is called a signature loan and is, in fact a private, unsubsidized loan, that it could be dischargeable... if it is not.. then in the future if I did want to get rid of it... couldn't I just consolidate it with my bank or some other specialty loan company, effectively making it a non educational loan, and then file bankruptcy?? My credit score is high, somewhere around 700, and I think that I will be able to maintain it, at least for a while... so I most likely won't file bankruptcy, but I thought I should review some options... as far as a job, I most likely will work in Finance or in Psychology fields since those were my majors in college... although I know much about finance, I know practically nothing about bankruptcy....thanks again to everyone who posted a reply... it sure helps to hear other points of view, especially when they have experienced it firsthand... Thanks again!!

[skyan]

I can answer one of your questions... You said/asked...

I was under the impression that since the loan that I received is what is called a signature loan and is, in fact a private, unsubsidized loan, that it could be dischargeable... if it is not.. then in the future if I did want to get rid of it... couldn't I just consolidate it with my bank or some other specialty loan company, effectively making it a non educational loan, and then file bankruptcy??

Yes, you can do that. Right now, they won't be dischargeable, even though they are private. That is my understanding. My husband had one that he was told was not dischargeable. The school shut down too. So, he had to fight the lender through the Attorney General to get rid of that one.

What you can do... is yes, you can put it into a consolidation loan. You'd have to make sure the new loan wasn't an education loan though. It would have to be like a home equity type loan. You might want to ask an attorney before you plan to do that though. Just to be sure. Since the laws are changing... I don't know if they'd find a way to stop that kind of activity or not. I hope not. People need to find a way out of these loans when they really can't afford to pay them. You might just ask hypothetically, if you paid off your student loans through another line of credit, such as a home equity loan... would that loan then be dischargable?

Good Luck.

[stevie2012]

Sallie Mae is one of the leading servicers for federal student loans; however, they are also one of the leaders in private student loans, accounting for well over half.

If you are unsure if you have a Federal or Private Student Loan with Sallie Mae, simply contact a student loan consolidator and ask them to look up your loans in the National Student Loan Database (NSLDS). If your Sallie Mae loan is not listed, you have a private student loan.

Private Student Loans are typically for those who do not wish to borrow under the Federal Family Education Loan Program (FFELP) or who require additional funding to fill the gap of expenses not covered by FFELP loans (usually the later).

Student loans (federally speaking) are all near impossible to be discharged in a bankruptcy, unless you have reasonable proof the student loans are the CAUSE of your financial struggle to begin with (which is a total rarity and very, very hard to prove).

Unlike Federal Student Loans, Private Student Loans may be included in your debt settlement program. The reason is simple. Private Student Loans are a signature loan, based on creditworthiness. For this reason, Private Student Loans are eligible for settlement, just as any other personal loan.

Keep in mind if you include your private student loans in a debt consolidation or wish to dismiss them in BK, you can kiss your chances of getting another loan goodbye. I say this because you mentioned you were still in school.

With regard to consolidation, most lenders won't touch a private student loan while you are in school. Most require that the loan be in active repayment or that the first payment is due within 30 days.

Keep in mind, while you are in school, even on private loans, you are still considered in an "in school deferment" and do not have to pay them back until you are out of school for at least six months (grace period).

[Lightning]

... as far as a job, I most likely will work in Finance or in Psychology fields since those were my majors in college... although I know much about finance, I know practically nothing about bankruptcy....

I'm sorry, but I nearly spit out my coffee when I read this. A finance major filing bankruptcy? I don't know what you plan to do with the finance major, but walking into a finance job interview fresh out of college with a brand new bankruptcy on your credit report isn't going to look good.