Bankruptcy and Student loans

Bankruptcy does not discharge student loans except in very small circumstances such as disabling event that prevents you from practicing you profession. But I will talk about how to mitigate the negative effects of an unmanageable student loans.

If you are about to graduate and you are unable to pay the debts, consider deferment. There are programs that allow you to defer the payments on your student loan for a period of a maximum of 3 years. Hopefully you will be able to obtain a well enough paying job in the mean time to begin covering your living expenses and start paying back the student loans.

If that is not possible, you must plan your spending behavior in a manner that recognizes that student loans are not discharged in bankruptcy. If you have to decide between paying a non dischargeable debt or a dischargeable debt, always, always, always, pay back the none dischargeable debt. Pay back you student loans first and foremost, and them make your credit card payments. So long as you are making the minimum payment and keep the interest rate on your credit card at very low interest rates, bellow 5%, (by doing balance transfer offers) you are staying above water and hanging on to fight another day.

If job prospects are not improving and your debt limit is rising steadily, at least it is the dischargeable debt that is rising. Bankruptcy court will not penalize you for choosing to pay your student loans and not pay your credit card debt. Just do not go crazy using the credit cards. Use them for reasonable necessities of life and do not abuse the credit cards by doing major cash advances to pay off your student loans. If you have to file a chapter 7, in such a case at least you will wipe out all the credit card debt that accumulated, while you paid of the non dischargeable student loans.

Roland Kedikian is a Los Angeles Bankruptcy Attorney practicing in Bankruptcy Exclusively.