I AmA Bankruptcy Lawyer and Student Loans are Killing Millennials and the Middle Class. AMA!

I read something on reddit a while ago about getting some credit cards, increasing their limits over time, use them to pay of students loans, pay on them for 6-8 months, then file for bankruptcy.

Is this even feasible or legal for that matter?

There we go . . . right to the heart of the issue! That is a great question. The fact is that if one were to do that without the faintest notion that you were converting debt from non-dischargeable to dischargeable . . .it would work! Now, if that is all part of a diabolical plan to discharge what is generally a non-dischargeable debt . . . it could be seen as fraud and non-dischargeable. I would suggest to anyone considering that course of conduct that things like how long have you had the card, is the amount being charged different than past usage and is there other, non-student loan debt, would help determine if such an action could survive a bankruptcy challenge.

Hi Neil! Not OP, but could you explain this further? How is "normal" bankruptcy not seen as fraud, whereas the above example of consolidating student loans and filing for bankruptcy could be construed as fraud?

Bankruptcy is for the honest debtor . . . what that means is if you incurred debt with the thought you would discharge it through bankruptcy, that would be seen as bankruptcy fraud. I tell clients the court wants to know when you took out debts because the Judge wants to make sure you did not run up a debt and three days later file for bankruptcy. That would be bankruptcy fraud.

What policy changes do you think are coming in the area of student loans?

Really good question . . . . having lived through the so called Bankruptcy Reform efforts in the late 1990's and early 2000's which resulted in the Bankruptcy Reform changes in 2005, that took years and was a terrible process. The politics of the "reform" was from a conservative point of view and I believe very detrimental to consumers and ultimately to our economy. However, I do believe there will be some type of student loan reform in the coming years . . . it is politically inevitable. Given the impact of compound interest, I will soon be seeing clients with $1 million student loan balances which are not payable in any scenario. The question is whether the existing bankruptcy laws will be used to help allow these debts to be discharged or will there be other programs initiated. I do not think drastic action will be anytime soon . . . but give it another 3 to 4 years and I think the overwhelming debt many will fact will force the issue.

What is the most common cause of debt with your clients?

I have always divided things up as follows: about 50% due to a circumstance such as a job loss, divorce or medical situation; 20% due to a business failure such as trying to flip houses or a failed business or lawsuit; 25% just due to poor financial decisions on credit cards or getting too expensive a mortgage; and the remaining 5% or so are an assortment of schemers who probably know how to work the system.

Say I move to Canada for the rest of my life. Anyway I can default without repercussions?

You got me on that one . . . I am not an expert on Canadian insolvency laws. It would certainly be more difficult to pursue you but I would have to look into that more.

Hey Neil,

I have about $30k in federal student loans that I have not even started paying down (because I can't afford to). I graduated a couple years ago but have avoided answering those calls. I'm terrified of what might happen. I have heard that income based payments exist, but I make so little, I really don't think I could afford more than 60 or 70 dollars a month without drastically changing my life (i.e. moving somewhere cheaper/selling my possessions/eating pb&j for every meal). I've heard of payments in the hundreds of dollars a month. That would be impossible for me.

How screwed am I, and what is my best course of action? Thanks.

Edit: Thank you so much for everyone who offered advice. I'm going to call and set up an IBR tonight. Deep breath. Ready for the sigh of relief. THANK YOU!

OK . . . great question. First though . . . nice screen name, I am sure there is quite a story there! Here is the bottom line, you ought to race to sign up for an income based repayment plan. The less you make right now, the less you will pay and that will start the clock running as those repayment plans end usually after 20 years and whatever is left due is forgiven. So, you are better off starting paying when you are at the beginning of your career. Additionally, if you work for a non-profit or public entity, your repayment plan could end after only 10 years.

I've been hearing a lot of people recently have been getting their student loans forgiven under the pretense that their college Lied to them or mislead them on how successful they would be after receiving their degree from them. How would one go about getting their loans forgiven and is it something worth checking into?

Great question . . . and the answer is YES it is something worth checking out. First, the only loans to which this might apply are federal loans. If you have private loans, the federal rules dealing with a number of closed colleges would not affect those loans. However, if you have private loans, and your school closed, you ought to be able to contact your lender (or servicer) and receive more information. Now, if you already received your degree and the school closed after that fact, obtaining a forgiveness based on the school closing is not as easy. If you are simply unsatisfied with the education you received, more often than not, you will not be able to obtain a forgiveness for that reason alone.

Ahh, so the school has to have closed for this to be an acceptable argument for loan forgiveness? I was promised a job via job placement after I graduated from Baker College. The school is not closed, but no attempt was ever made to help me find a job, nor was a job available like the counselor promised me there would be when I originally signed up for the program. Basically from what I'm gathering I'm just SOL?

I appreciate the questions and where you are coming from . . . but to be realistic, if the school is closed, the likelihood of having it forgiven is far greater. The issue of schools over-promising to attract potential students is interesting and has some potential in terms of presenting a defense. Obviously, if you owed the school the money as opposed to a third party lender, those defenses to repayment would be stronger. However, given that most loans involve third parties who are not associated with the schools, the ability to get out of those loans due to the school's misdeeds is limited. So, yeah . . . you are pretty much SOL. Look at your repayment options.

The University I attended violated the William D. Ford Direct Loan Program. And my loan collection agency will not listen to me and honor the contract I signed that states "Has violated the William D. Ford Federal Direct Loan Program: pertaining specifically to this paragraph in the agreement:

"In some cases, you may assert, as a defense against collection of your loan, that the school did something wrong or failed to do something that is should have done. You can make such a defense against repayment only if the school's act or omission directly relates to your loan or to the educational services that the loan was intended to pay for, and if what the school did or did not do would give rise to a legal cause of action against the school under applicable state law. If you believe that you have a defense against repayment of your loan, contact the Direct Loan Servicing Center. "

I am trying to defend myself against collection- but they refuse to listen to me. Do I need a lawyer to sue them?

The fact is that you will be taken far more seriously if you retain a lawyer. Do you "need" one . . . not technically.

Hi, I know some people who went to law school that are over $80,000 in debt. These people also don't make much money at their current jobs. Will they ever be able to get rid of their loans through bankruptcy? Because right now, I hear that is almost impossible.

I have seen many clients with far more debt than that . . . the ones I seem to see often with huge debt are Chiropractor students. In any case, the income based repayment plans are good deals especially for those starting off in their careers. Paying 10% of one's pay toward loans is sensible and doable for many. What is a shame is that so many people fail to look into the options available . . . as they are petrified of the process. The ability to get a hardship discharge of student loans is changing though . . .more courts are now considering financial inability to repay the debts as a basis for granting a hardship discharge. However, different courts around the country handle it differently. The additional thing I often tell people is to consider filing for such a hardship discharge (in the right circumstance) and trying to settle before trial. You will not get everything you want, but half a loaf is better than no loaf.

Hi Neil,

Can you tell me if there's any current federal legislation being considered by Congress regarding federal student loan debt? There was supposedly a bill a few years ago that would make federal student loans automatically discharge after X years of good faith payments, but it seems to have vanished into the ether.

Also, is there anything the federal government can do as far as regulating private student loan lenders? Capping interest rates, or something?

There is no legislation being seriously contemplated currently to fix or even help the problem. The banking and financial sectors are so in charge of the Republican majority, any fix while they remain in control is a pipe dream. The role of the Consumer Financial Protection Bureau and private loans is going to be an evolving story. I think the ability of the CFPB to require better disclosure and education for folks so they know what they are getting into will be more the focus.

Thanks for your answer! I plan on throwing around my voting weight this year to change the colors of Congress, hopefully for the better of our nation as a whole. I'm tired of writing letters to representatives that aren't representing me.

Thanks again!

Getting involved in the political process is so important. I have always been a political junkie too! My hero growing up was Uncle Walter (Cronkite).

For people going into professional school, such as medical, dental, law school where loans after getting out of school will be close to $500,000 or more, what advice can you give to reduce these debts, or is there anyway to consolidate the loans to get a better interest rate or to get these loans forgiven?

As one of my law partners says . . . "the world also needs ditch diggers!" However, if that sage advise does not work, here are some thoughts - first, always take the public loans or government loans first. I would never tell someone not to become a lawyer or doctor because of the loans, but why is it necessary to live completely off loans while in school. I think students who enroll in these programs need to borrow only what they need and have to realize the importance of earning while in school too. The fact is that getting scholarships to professional schools is difficult. Its far easier to get scholarships to undergraduate school based on grades etc. Now, for public loans consolidation is an available option. Folks in these situations also need to evaluate the Income Based Repayment plans. Also, keep in mind the importance of the fact that if one goes into public service or work for a non-profit, the repayments may stop after only 10 years.

Is it safe to assume that when you marry and file taxes jointly, your spouses student loan debt is basically your obligation?

No . . . the fact you file taxes jointly does not make you liable for your spouse's student loans in a legal sense. Now, depending on how you integrated your finances are in your marriage, the reality may be different. However, if a strict legal sense, liability is not on marriage or how taxes are filed.

I have significant federal loans which I'm staying afloat with IBR payments. However, my wife has a huge amount of private (North of $100k) as well as federal loans. She is still in school for her doctorate but we have significant anxiety over our future ability to pay for her loans, especially the private loans.

The house is in my name only but the car is in her name. I think a vehicle is exempt during bankruptcy in Maryland but I'm not positive.

Questions: If we aren't going to need her credit for the next 7 years what downsides should we be aware of if she files for bankruptcy?

Will her private loans be dissolved or just reduced?

Is there any effect at all on federal loans?

Generally speaking, private student loans are not dischargeable either. So, if the private loan was obtained and the money paid directly to the school, that too is only dischargeable in the event of a hardship discharge. Now, if you received a private loan to payoff student loans, that might be dischargeable. The question of whether to file for Ch. 7 has to be considered as a whole. What other secured or unsecured debts do you have. Again, it seems to me the IBR program you are currently in would be something to consider for her as well.

Hi,

I'm a minister with about 20K left in Student loans under my name. Our church is a non-profit organization and I've been working here for 8 years. What are the chances of my student loan debt being forgiven? I'm in such a low paying field and pay almost $300 monthly in student loans!

If it were not for my wife's income as an RN we would surely be in heaps of trouble.

Again, the important first thing to determine is whether your loans were public or private . . . if public, you ought to sign up for one of the repayment programs and start the clock running. Possibly an income based repayment or extended repayment will lower your payments. There are certain forgiveness and discharge programs for occupations such as Teacher, VISTA volunteer, Military, Peace Corp that can also forgive a certain amount of debt based on years of service. Working for non-profit may allow the discharge of the balance due on any direct loans after 10 years.

What is the biggest mistake you see students do when it comes to student loan debt?

Borrowing way too much . . . planning on living completely off student loans while in school makes no sense. Whether you use funds from parents, your own savings or work . . . these are a must. Encouraging students to borrow everything they need to live while in school is ridiculous.

Are there any trends you can identify in the backgrounds of the clients you see? Are they all affluent, from a specific area, or anything else noteworthy?

Lemons or limes?

Interesting question . . . and the answer may surprise you. There is a wide array of clients I see. I have had clients file bankruptcy that had failed businesses but lived in affluent areas. Due to things like divorce and job loss, I see clients who never thought they would see a bankruptcy lawyer. As far as student loan clients, since many such clients may have great jobs, they are not candidates for bankruptcy but may need help determining how to best payoff their loans. Of course, I also see a fair amount of clients from small towns and rural areas outside our metro area . . . it is easy to see they are from poor areas, having little formal education or job prospects. I do find it rewarding to help these folks, regardless of their background.

As a recent graduate of a NYS university I was deemed ineligible for Cuomo's "Get On Your Feet" forgiveness program for paying off public college loans. The sole reason I am ineligible is because I graduated six months before the law was passed (I graduated a year early thinking that would lower by student loan debt...silly me) Is there any action I can take, or people I could talk to, that would help me fight for a chance to be involved in this program?

Sorry . . . I am not a NY lawyer and not familiar enough with the program to be of help. I do know NY state has some of the most helpful programs out there for NY state residents. I would recommend finding the NY state government office that deals with those programs and review the website or call. The NY Attorney General website might be another place to start.Sorry.

Do you support Bernie Sanders in the election then?

While I am in agreement with his sentiments on income inequality and all the problems associated with it . . . I am a Clinton supporter. I believe her more incremental approach to progress will be more helpful to achieving progress.

Between a 7 and a 13 which usually ends up with a better outcome for the consumer?

Important question . . . but need lots more information. For example Ch. 13 has limits . . . so if your debt exceeds a certain amount you are ineligible. And Ch. 7 has a means test, if you earn too much you may be ineligible. The bottom line for most is that Ch. 13 can help cure a mortgage arrearage and force a mortgage company to let you cure an arrearage over the life of the Plan. If you are considering bankruptcy seriously, you need to talk with a bankruptcy attorney in your state . . . state exemption laws also differ greatly and factor into any such decision.