You may recently have heard that student loan debt now exceeds credit card debt. Currently forty-four million Americans owe some $1.5 trillion in student loans. You may also have heard there’s a proposal in Congress that would make student loan debt dischargeable in bankruptcy just like any other debts. Among the bipartisan bill’s sponsors are Senators Elizabeth Warren (D-Mass) and Dick Durbin (D-Ill) and Reps John Katko (R-NY) and Jerrold Nadler (D-NY). But this is not the first time such a proposal has been bandied about. We can only wait and see.
In the meantime, the conventional wisdom is that the only way to get out of student loan debt is by dying — unless you’re lucky enough to suffer from certain disabilities.
That said, there are ways of dealing with student debt in the bankruptcy process, even if you can’t make it go away. While we wait to find out what happens to the Student Borrower Bankruptcy Relief Act of 2019, I thought it might be helpful to make sure that readers understand the consequences of defaulting on federal student loan debt.
1. The maturity date on your promissory notes are accelerated so that they’re due immediately. The long and short of this is that you can’t subsequently seek a forbearance or deferment.
2. The government can take any tax refunds you are owed.
3. The government can garnish your wages up to 15%.
4. If you want to buy a home in the future, you won’t qualify for FHA or VA loans.
5. The government can take some of your Social Security when you get older.
6. The government can pursue a lawsuit against you.
7. Your credit score will suffer significantly for 7 years.
As I mentioned above, however, there are ways of dealing with student loan debt. So if you’re thinking you might have to file for bankruptcy in New York and you have student loan debt, please feel free to contact me for a free initial consultation.
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