College Costs and Bankruptcy Indiana 101 for Parents

September 9, 2012 2:54 pm Published by

There’s a college level 101 test question that keeps coming up at the Zuckerberg bankruptcy law offices, and it comes from people who need student loan debt help. I’ve written many times in these Bankruptcy in Indiana articles about the fact that student loans are almost never dischargeable in bankruptcy.

One reader, though, has narrowed down the question. “While I understand that, if I were the one filing personal bankruptcy in Indiana,” he writes, “other debts of mine could be discharged and that would free up some cash to keep up the payments on my student loans, that’s not what’s going on in our family.  My wife and I are the ones thinking about filing individual bankruptcy, and we’re also the ones whose name is on the PLUS loan that helped our son get through school. With all of our other debts and with me just coming off a six-month layoff, we haven’t been able to make payments on time.”  The Richmond bankruptcy lawyer who spoke with these debtors found out that they’d contacted their loan servicer to ask if they could transfer the loan to their son. The couple had been told “No”. A direct PLUS loan made to a parent cannot be transferred to a child.  They would need to be responsible for repaying the loan.

Since student loan debt help has become a bigger and bigger portion of many people’s debt problems, I’ve been carefully following all the news having to do with college debt. Often, I find, a discharge of other debts during bankruptcy can make it somewhat easier to keep up with the student loan. The first step my colleague advised this couple to try was approaching their lender to ask about any programs available to them that could lessen the student debt burden.  For example, there are special options for public servants, disabled people, and the military.

The rate on PLUS loans today is 7.9%. While that is a high number, it is very low compared to most credit card rates. The real question is, if this couple files personal bankruptcy in Indiana and higher rate debt IS discharged, will they be able to handle the PLUS loan payments?

If nothing else, the bankruptcy automatic stay will buy some time for them to work out a plan of action, putting a halt to all collection efforts and legal actions. And that, I imagine, would prove to be a big “plus”!


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This post was written by Mark Zuckerberg

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