Late last year, The Boston Globe ran an article touching on a difficult topic in New York bankruptcy: joint, nondischargeable debts. Normally, if a debt is jointly owed and dischargeable, then it’s unlikely to raise problems in bankruptcy, whether the borrowers are married or not. Once it’s discharged, the lender may demand payment from the non-filing partner, but he or she still has the option of filing bankruptcy as well. When married couples separate, splitting some debts can raise difficulties, particularly if debts were combined in the first place. However, when debts can’t be split, then different challenges can occur.
The article showcased former spouses with joint student loan debts. Partners would consolidate their student loans while they were married, but after they separated, one of them would refuse to pay his or her portion of the debt. In some of these cases, one partner had abused the other. Fortunately, the federal government disallowed marital consolidation of student loans in 2005, but apparently many couples are stuck with them. The concern is that while the pain is acutely felt by these joint debtors, there are so few of them that neither Congress nor the Department of Education have much interest in trying to help them.
Bizarrely, debtors in these circumstances might be better off if their partner had died or become disabled rather than left the picture. The Department of Education allows debtors with joint debts to administratively discharge the initial portion the debtor owed from the balance, leaving the other spouse to pay down the rest of the balance. Income-dependent repayment plans are also available to separated spouses with joint student debts, so long as both debtors submit the regularly required financial information to the Department of Education. Again, this requires some amount of cooperation between the two former spouses, which might not be the case.
The loophole discussed here is essentially the same as the bankruptcy implications of co-signing student loans, which usually involves parents of student debtors. The difference, though, is that co-signers can sometimes obtain releases from their obligations if payments have been timely.
The Boston Globe article can be found here.
There aren’t many other debts that are excluded from a chapter 7 discharge order that can create the kinds of problems that joint student loans can, but the consequences are quite severe for those who owe them. If you are encountering financial difficulties and a joint debt is a part of it, then talking to an experienced New York bankruptcy lawyer can help you assess your options.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.