Today, is a guest post — I’ll add my comments to it tomorrow.
What happens to your kids’ education and educational loans if you are in bankruptcy?
Many recent graduates of colleges and professional schools are not able to find good jobs – or any jobs at all. However, these young men and women are not the only ones suffering from the lack of employment. Often, their parents have paid considerable amounts of money for their education – and are not yet done paying. Many had signed or co-signed student loans for thousands of dollars.
Some parents feel taking out the debt was worth it in the long run. Some, sadly, feel it was a waste of resources, and their kids cannot or will not find worthy jobs in this economy. What’s common across the board is that more parents than ever before feel the pressure and the burden of student debt and mounting interest, and more are not able to keep up with the payments. Many lost their jobs or investments, and may have been forced into early retirement or had their hours cut. The lenders may or may not defer the payments or offer a better payment plan, and the loans may be referred to collection agencies.
So what happens if you file bankruptcy while you are still liable for your student loans, or your kids’ student loans?
The bad news is that student loans are almost never dischargeable in bankruptcy. Also, they can continue to accrue interest while you are in bankruptcy.
The good news is that the lender’s collection activities against you have to be put on hold while your bankruptcy case is active. If you are in a five-year Chapter 13 plan, the lenders cannot be trying to collect the payments for the student loans from you during these five years. Also, if you are making any payments to general unsecured creditors (such as your credit cards) through your bankruptcy, the student loans will also get at least partially repaid.
If your adult children are still in school and you want to pay for their ongoing tuition or school supplies, you should be able to do it while you are in bankruptcy. However, you may not necessarily get credit for these expenses – or at least for the full amount of these expenses – when the bankruptcy trustee calculates how much disposable income you have available to repay your creditors. The trustee may say that the creditors should not have to sponsor your adult kids’ education – and if you want to pay for your kids’ college tuition, that’s up to you if you cut your other expenses, so that the creditors still get a fair payment.
It makes a big difference what your particular trustee’s stance is on this issue, and how much credit he would give you for these school expenses. Hopefully, your bankruptcy attorney has seen similar cases and would be able to give you a good idea of what to expect before the case is even filed.
If your minor children are still in school, it’s easier to show why paying for their schooling is necessary and reasonable. If they have any special needs that require additional expenses, be sure to make it clear. However, if what you pay for their education seems excessive (for example, you are paying for an expensive private school) and your budget is otherwise not too tight, the trustee may decide that you should be paying more to creditors.
Bankruptcy does help ease many financial burdens. It helps lift the burden of student loans, as well – although in most cases, only temporarily. If you have any ongoing or projected school expenses, your local bankruptcy attorney would explain how the trustees in your area treat them, and what effect these expenses would have on your petition. Armed with this knowledge, you would be in a better position to decide beforehand how much you are willing and able to invest in your kids’ education during the case.
The laws may be changing to provide better ways to battle and manage the student loan crisis. Many organizations, for example, National Association of Consumer Bankruptcy Attorneys, highlight the harsh realities faced by many student loan debtors, and fight for a meaningful and positive change in student loan regulations.
Victoria Maydanik is a consumer bankruptcy attorney who has successfully represented hundreds of Bay Area residents in their bankruptcy cases. She is the owner of Maydanik Law Firm with offices in San Jose and Milpitas, California.
Victoria received her Juris Doctor degree from Santa Clara University School of Law in 2007. She has a Bachelor of Science degree in biochemistry and cell biology from University of California, San Diego, and prior to practicing law, she was a scientist researching new cutting-edge cardiovascular and asthma treatments.
Victoria sees parallels between practices of science and law. She enjoys working with people and being able to help them, and she enjoys analyzing each situation with mathematical precision and meticulous attitude.