Advice for a Friend (defaulted Student Loans, Bankruptcy, etc)

[flyingsaucermom]

Originally Posted by LizfromtheBronx

Couple more things....but thanks all for your advice. The flaming hasn't even been as bad as I expected. There are a few posts I won't bother to dignify with a response....but mostly helpful in pointing me in the right direction to advise her.

- We live in the NYC area...so HCOL, especially with 2 kids. $4k sounds like a lot but it doesn't go very far here.

- Car is in her ex's name - she didn't want to buy it, but he insisted, then they split up, and he moved into Manhattan (she lives out on Long Island). So she drives the car everyday, and he takes it when he needs to. Not the best arrangement,and she knows she needs to cut that tie and get rid of the car, but coming up with the amount underwater is proving to be a challenge. I don't have the numbers but I would guess it's at least a few grand. If not more. In any case, the payments are up to date on it - half of the $$ he gives her goes to the car, I'd say. The other half goes to tuition, food, clothes, etc for their 12 year old daughter.

- SL is the only thing in defualt. I am going to try to find out what the mix/types of loans are.

For now, I am going to advise her to deal with the credit cards and the car, and hold off on any talk of bankruptcy. I didn't think it was the best option either.

The car... same thing happened with my friend. She gave the car back to her ex and told him to deal with it. Her boyfriend got her a used Jetta.

[bler144]

There is some misinformation in some of these posts - hensleya's is the best.

Can student loans be discharged in bankrupcty? Technically yes, but the bar for discharge is very high, which hensleya covers. And, since 2005, that high bar applies both to federal and private student loans.

So anyone who says they "can't be discharged" is sort of right for practical purposes, even if technically incorrect. There are a handful of cases where at least partial discharge has been granted, fwiw:

Oregon law school graduate beats back $50,000 in student loans | OregonLive.com

Though perhaps, the fact that the case is newsworthy helps point out just how rare they are. It's not quite the exception that proves the rule, but it's close. I'd have to look at the Douglas Wallace case hensleya noted, but my assumption would be that those are "private" student loans rather than federal.

Even if the judge in that case would have been right to rule that they were not dischargeable under bankruptcy rules, federal student loans can be discharged under a separate provision for Total & Permanent Disability, which has a much lower bar. Though that clause would not seem to apply at all in the case of the OP's friend.