Many parents took out PLUS loans or co-signed on private loans to help
put their kids through college, grad school, law school, or medical school.
Now, many of those graduates cannot find work sufficient to pay their
basic bills, let alone help their parents repay those loans. A recent
New York Times article explains how these loans are financially crushing millions of parents
age 60 and older.
As disturbing as the thought might be that co-signing a student loan for
your kid could drive you into bankruptcy, you may be at the point of wondering
whether bankruptcy could help. Unfortunately, the answer isn’t so easy.
Student loans can’t be discharged in bankruptcy unless extreme hardship
Unlike most other unsecured debt, student loans can’t be discharged in
Chapter 7 bankruptcy, or in Chapter 13. This wasn’t always the case. While federal student
loans could never be discharged, private student loans could be discharged
in bankruptcy like any other kind of unsecured loan if a debtor simply
couldn’t repay the debt. However, in 2005, the bankruptcy reform
laws were changed to make it almost impossible to discharge any student
loan, federal or private, except in extremely rare cases of hardship (for
instance, permanent disability). Reports indicate that only a very small
percentage of hardship cases are granted. Earlier this year, Senator Dick
Durbin introduced the
Fairness for Struggling Students Act to restore the pre-2005 laws and provide bankruptcy relief for private
Filing Chapter 7 may discharge enough debt to relieve the financial burden:
If parents can’t repay the educational loans they co-signed or took
out on behalf of their children, bankruptcy may offer little relief unless
the laws change. If the parents have significant other debt, then the
relief from that debt discharge may greatly help their financial situation.
Many retirement accounts are exempt from bankruptcy, along with some home
equity and a personal vehicle, which may make bankruptcy more attractive
for older borrowers who are having trouble paying all of the cumulative debt.
To learn whether
bankruptcy offers options that would provide financial relief for your situation,
contact attorney Kerry Denton at Denton Law Group for a free consultation.
Call (619) 458-3739 today to learn more.