Can I Discharge My Student Loans?
It’s not impossible, but it’s very, very difficult. The law requires you to prove that repaying your debts would be an “undue hardship” for you; here in New York, that means you have to prove that (1) repaying your loans would leave you unable to maintain a minimal living standard; (2) this will be true for a large part of the repayment period for your loans and (3) you’ve made a good-faith effort to repay your loans. You would have to start a special proceeding within your bankruptcy, which probably would be opposed by your lender – and your lender most likely has experts with a great deal of experience in opposing discharge.
Help may be available through payment reduction programs, especially for loans from or guaranteed by the Federal government (such as Sallie Mae loans). For more information, see http://ibrinfo.org/. If your loan is private, you can contact your lender about a payment reduction. Applying for a payment reduction – and then making the reduced payments – may enable you to repay your student loans without filing bankruptcy. If you’re rejected or can’t afford even reduced payments, applying for these programs helps show a good-faith effort to repay your loans.
How Would Bankruptcy Affect My Credit Rating?
Probably not as much as you’ve been told. If you’re considering bankruptcy, your credit score is probably already low; filing bankruptcy probably won’t make it much worse and might even lead to a small improvement (since your outstanding debt would be reduced or eliminated and the probability that you’d file bankruptcy would also be reduced).
You can rebuild your credit over a year or two by careful and responsible management of your credit. Right after bankruptcy, you’ll probably be able to obtain credit in small amounts (usually secured by a cash deposit); this will be the foundation of your new credit history. Your bankruptcy will stay on your credit report for 7 to 10 years, but your credit scores will start to improve soon with good management. (Ms. Cully uses a credit report service that will estimate your score a year after bankruptcy.) Depending on the financial market at the time, you could even obtain a mortgage within two to four years of bankruptcy.
How Much Does It Cost to File Bankruptcy?
The filing fee for a Chapter 7 bankruptcy is $299; for a Chapter 13, $284. Other required costs are: a credit report (approximately $30-40 single, $50-70 joint); a credit counseling course before filing (approximately $40-50 whether joint or single); and a financial management course after filing (approximately $40-50 whether joint or single).
Depending on your situation, you may also need to have your home or other valuable assets professionally appraised at a cost of $250-500. Valuing your car or getting transcripts of past tax returns may also be required, but is relatively inexpensive.
In most cases, there won’t be any other costs. But if your trustee or your creditors object to some aspect of your bankruptcy, you may have to engage in litigation against them. The cost of litigation is impossible to predict, but can be quite high. If you’ve been honest in your petition, your petition is complete and consistent, and you don’t have (or appear to have) any assets or income that could be used to pay your creditors, it’s very unlikely that anyone will object.
You may also decide to sue creditors who’ve violated the law. If you win, the creditor will be required to pay you the amount awarded by the court – and your attorney’s fees as well. Your attorney will discuss this with you and help you evaluate your chances of winning before you sue anyone.