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 is proven:
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 student loans.
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.