If you were in my shoes....

[T-Bone]

What would you do? Here is my situation. I am married and have 3 little girls. My wife ha a very large amount of outstanding student loans. She just graduated with a Masters in teaching and has not started paying any of the loans back.

Her debt:
$12K on an amex blue credit card from a failed business attempt
$89K in a consolidated federal loan from college
$35K in various signature loans from college

She started out as a chemical engineer, moved onto business and finally finished with a B.A in elementary education and a M.A elementary reading education. As you can see the loans added up.

Once our youngest (1 year old) turns 2, she plans on working and will probably start out making $35K/year. She is considering bankruptcy, but I was explaining there is no way to get rid of the consolidated federal loan and signatures loans with a chapter 7 since I believe all student loans are exempt.

Can someone please confirm that? If she filed chapter 7, only the $12K credit card debt would be disolved? If she files chapter 7, will this affect me financially in any way?

Thanks, in advance, for your answers.

[InTheRed]

What would you do? Here is my situation. I am married and have 3 little girls. My wife ha a very large amount of outstanding student loans. She just graduated with a Masters in teaching and has not started paying any of the loans back.

Her debt:
$12K on an amex blue credit card from a failed business attempt
$89K in a consolidated federal loan from college
$35K in various signature loans from college

She started out as a chemical engineer, moved onto business and finally finished with a B.A in elementary education and a M.A elementary reading education. As you can see the loans added up.

Once our youngest (1 year old) turns 2, she plans on working and will probably start out making $35K/year. She is considering bankruptcy, but I was explaining there is no way to get rid of the consolidated federal loan and signatures loans with a chapter 7 since I believe all student loans are exempt.

Can someone please confirm that? If she filed chapter 7, only the $12K credit card debt would be disolved? If she files chapter 7, will this affect me financially in any way?

Thanks, in advance, for your answers.

Yes to both questions. Student loans are nearly impossible to discharge in bankruptcy and if she files chapter 7 and you're married, you will soon find the creditors and the bankruptcy court coming after you for her bills. You will both need to file for chapter 7 or 13 bankruptcy to make that work, and for $12,000 it may not be worth it, because you may lose anything that is not exempt-- the trustee will take it from you and sell it to pay off the creditor. Go see a bankruptcy attorney as soon as possible, before the new bankruptcy law goes into effect, to see if this would work out best for you. After October 17th, 2005, it will be even more expensive and difficult to file for bankruptcy, but not impossible.

If you do nothing, your credit card company will sue you and win a judgment, which they will then use to clean out your checking accounts, savings accounts, and even garnish your wages. So, if you find that doing nothing is preferable to bankruptcy, then get all of your cash out of your bank and keep it in a safe place at home, and start cashing your paychecks instead of depositing them, because they can both garnish your wages and then take anything you have in your checking account. They can only garnish up 25% of your paycheck, and in some cases, if you are making less than 30 times the minium wage per week, they can't even garnish your wages at all. Depending upon where you live, after a certain period of time, the statute of limitations will run out and the creditor will not be able to collect from you anymore. It varies widely from state to state, so look up the info for your state.

As for the student loans, contact the U.S. Dept of Education and ask for a "Direct Consolidation Loan" and then select their "income-contingent repayment plan." That will reduce your monthly payments down to a very low level and in some cases even give you a "$0.00" monthly payment, if your income is low enough. That's what I did because I'm only making a little bit over minimum wage and not working full-time, so my monthly student loan payment is zero.

[T-Bone]

Yes to both questions. Student loans are nearly impossible to discharge in bankruptcy and if she files chapter 7 and you're married, you will soon find the creditors and the bankruptcy court coming after you for her bills. You will both need to file for chapter 7 or 13 bankruptcy to make that work, and for $12,000 it may not be worth it, because you may lose anything that is not exempt-- the trustee will take it from you and sell it to pay off the creditor. Go see a bankruptcy attorney as soon as possible, before the new bankruptcy law goes into effect, to see if this would work out best for you. After October 17th, 2005, it will be even more expensive and difficult to file for bankruptcy, but not impossible.

If you do nothing, your credit card company will sue you and win a judgment, which they will then use to clean out your checking accounts, savings accounts, and even garnish your wages. So, if you find that doing nothing is preferable to bankruptcy, then get all of your cash out of your bank and keep it in a safe place at home, and start cashing your paychecks instead of depositing them, because they can both garnish your wages and then take anything you have in your checking account. They can only garnish up 25% of your paycheck, and in some cases, if you are making less than 30 times the minium wage per week, they can't even garnish your wages at all. Depending upon where you live, after a certain period of time, the statute of limitations will run out and the creditor will not be able to collect from you anymore. It varies widely from state to state, so look up the info for your state.

As for the student loans, contact the U.S. Dept of Education and ask for a "Direct Consolidation Loan" and then select their "income-contingent repayment plan." That will reduce your monthly payments down to a very low level and in some cases even give you a "$0.00" monthly payment, if your income is low enough. That's what I did because I'm only making a little bit over minimum wage and not working full-time, so my monthly student loan payment is zero.

Thanks for the reply. Let me ask this. Hypothetically, assuming my wife has $125K of available credit on various credit cards, what would happen if she paid off all her student loan debt using credit card balances, waited 2 months and then filed chapter 7? I am sure this has been thought of already and wouldn't work?

[HHM]

Thanks for the reply. Let me ask this. Hypothetically, assuming my wife has $125K of available credit on various credit cards, what would happen if she paid off all her student loan debt using credit card balances, waited 2 months and then filed chapter 7? I am sure this has been thought of already and wouldn't work?

Not a chance, that is text book bankruptcy fraud whether you waited 2 months or 2 years.

Your correct, your wife is stuck with the student loans unless she become mostly disabled.

Tell us more about the signature loans? I bet you could get rid of the signatuer loans in a chapter 7, but even if your wife files and you don't, your income and assets are part of the BK. You should take your wife to see a lawyer to discuss your options, initial consultations are usually free.

[T-Bone]

Not a chance, that is text book bankruptcy fraud whether you waited 2 months or 2 years.

Your correct, your wife is stuck with the student loans unless she become mostly disabled.

Tell us more about the signature loans? I bet you could get rid of the signatuer loans in a chapter 7, but even if your wife files and you don't, your income and assets are part of the BK. You should take your wife to see a lawyer to discuss your options, initial consultations are usually free.

It sounds like even though the spouse files BK, it could affect me, specifically my salary, so that's not an option. It looks like we will probably be paying this monster until we retire. What a waste.

[herekitty]

Cheek up

It does suck that the majority of your debt is not dischargeable - but something to consider is a little provision in student loans ...

(From direct loan website)
Your loan can be discharged if you are a teacher with new loans after October 1,1998 and who is teaching in selected low-income schools for five consecutive complete academic years may be eligible for the Teacher Loan Forgiveness Discharge, up to $5000.00.

Also, my uncle has about that in student loans and opted on the contingent consolidation, where if he makes under a certain amount of money - he doesn't owe anything as Red said.

[Minnymouth]

Now that's something to seriously look into!!!
I also heard something about the wage thing, if you make less than National average for teachers.
Also some grants and loan do not have to be paid back if:
1. used in the state that granted it
2. if used in a rural, poverty area

Same principal where doctors do internship in rural area to payback for their education....like many do!! They have to do a certain amount of time working in a rual, proverty area... then their debts are reduced or dissolved.

Check all this out......may prove interesting....there is a shortage of teachers, etc.

Minny

[InTheRed]

It sounds like even though the spouse files BK, it could affect me, specifically my salary, so that's not an option. It looks like we will probably be paying this monster until we retire. What a waste.

That depends on how old you are. Retirement for most young people will be almost non-existent or at least delayed until their late 70s, due to Social Security cutbacks, and private companies raiding pension and retirement funds. Anyways, after 25 years of "income-contingent" repayment of a "direct consolidation loan," the balance and interest are forgiven completely, no matter how much or how little you have paid by that time.

I've been in the ICR plan since I left college, so eventhough I haven't been paying anything on them, the clock is still ticking down on them. I hope to be completely out of debt by my late 40s. I also ran up a huge credit card debt after I left and I'm waiting for their statute of limitations to expire, or file bankruptcy.

It's definitely something worth looking into because you'll be dealing directly with U.S. Dept of Education rather than some hostile bill collector, and they are very flexible and understanding with their repayment plans.

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16. How is the amount of my payment calculated under the ICR plan?

Until the Department receives income information from the IRS or alternative documentation of income, borrowers' monthly payments are equal to the interest that accrues each month. If they are unable to make the interest-only payments, borrowers may request a forbearance until the first scheduled Income Contingent Repayment (ICR) plan payment is due.

Under the ICR plan, the monthly payment is $0 for borrowers with income less than or equal to the U.S. Department of Health and Human Services poverty level for their family size. Borrowers whose calculated monthly payment is greater than $0 but less than $5 are required to make a $5 monthly payment. Other borrowers must pay the calculated monthly payment.

Because the ICR Plan is designed to keep payments affordable, it contains calculations to protect low-income borrowers. Low-income borrowers pay the lesser of:

the amount they would pay if they repaid their loan in 12 years, multiplied by an income percentage factor that varies with their annual income, or
20 percent of their discretionary income (AGI minus the poverty level for their family size)

The maximum repayment period for the ICR Plan is 25 years. Earlier payment periods, for borrowers who begin repaying in the Standard Plan or 12-year Extended Plan, count toward the 25-year maximum. Earlier payment periods in other plans do not count toward the maximum. If the Direct Consolidation Loan is not repaid after 25 years, the unpaid portion is discharged. However, borrowers must pay taxes on the portion discharged.
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For more info... http://www.loanconsolidation.ed.gov/...borrower.shtml

One caution: only deal directly with U.S. Dept. of Education. The private companies which offer loan consolidation are scams.

[hhou812hh]

Not a chance, that is text book bankruptcy fraud whether you waited 2 months or 2 years.

Your correct, your wife is stuck with the student loans unless she become mostly disabled.

Tell us more about the signature loans? I bet you could get rid of the signatuer loans in a chapter 7, but even if your wife files and you don't, your income and assets are part of the BK. You should take your wife to see a lawyer to discuss your options, initial consultations are usually free.

HHM, would a ch13 work if they did this? Even under the new laws? Probably not the new laws since you can't discharge debts incurred from fraud even in a 13, but how about a 3 to 5 year ch 13 in it's current form? Will they still dismiss it due to fraud?

[T-Bone]

That depends on how old you are. Retirement for most young people will be almost non-existent or at least delayed until their late 70s, due to Social Security cutbacks, and private companies raiding pension and retirement funds. Anyways, after 25 years of "income-contingent" repayment of a "direct consolidation loan," the balance and interest are forgiven completely, no matter how much or how little you have paid by that time.

I've been in the ICR plan since I graduated from college, so eventhough I haven't been paying anything on them, the clock is still ticking down on them. I hope to be completely out of debt by my late 40s. I also ran up a huge credit card debt after I graduated and I'm waiting for their statute of limitations to expire.

Not sure I understand this? After 25 years the loan is done even though it may not be paid off in full?

[Lightning]

Sounds like a heck of deal. Someone gets to go to Harvard all on loans, and then they make minimum wage or perform a public service and they don't have to actually pay for tuition. I'm surprised this isn't advertised at high schools.

[herekitty]

Technically speaking they can't get a completely free ride at Havard - there are limits to what you can take out per year you are in school, plus most schools are funded by government or state money so I don't think they'd broadcast how to get out of the loans.

Red - That explains why my uncle was pushing it so much on me! I'm going to look into the contingency as well when this whole bankruptcy deal ends!

[HHM]

Sounds like a heck of deal. Someone gets to go to Harvard all on loans, and then they make minimum wage or perform a public service and they don't have to actually pay for tuition. I'm surprised this isn't advertised at high schools.

But really, how many with a college education stay below minimum wage for 25 years, and really, who would want to.

[T-Bone]

But really, how many with a college education stay below minimum wage for 25 year, and really, who would want to.

I must have missed the part where you have to stay below minimum wage for 25 years. Sheesh. I guess I need to strike it rich to pay these off in some reasonable amount of time.

If my wife makes $35K, she would take home approx. $1900 a month. Let's say she applies $1500 a month towards financial aid loans. It would take her 10 years to pay off the $124K outstanding balance? How depressing is that.

[HHM]

I must have missed the part where you have to stay below minimum wage for 25 years. Sheesh. I guess I need to strike it rich to pay these off in some reasonable amount of time.

If my wife makes $35K, she would take home approx. $1900 a month. Let's say she applies $1500 a month towards financial aid loans. It would take her 10 years to pay off the $124K outstanding balance? How depressing is that.

It has to do with the income sensitive loan. As I understand it, you have to verify your income and then the loan servicing agent calculates your payment. I was being a bit sarcastic about the minimum wage comment, but your payment is zero if you are below the federally set poverty line. And no offense to anyone here, if your college educated and can't get above poverty line in 25 years (hell, in 5 years)...

It just seems like a bad strategy to intential not make money for nearly a third of your life to get out of paying student loans.