Kiro from Mass. asks: I’m over my head in student loan debt, but have good credit and lots of it. I thought up a plan to put my student loans on my credit cards and then file bankruptcy on the cards. What do you thing? Is this a good idea? It doesn’t bother me a bit that the bankruptcy will be on my credit report for 10 years. I’d rather be out of debt completely and then move to another country and start over. If anyone has ever used this method to get out from under massive credit card and student loan debt, I’d like to hear about it!
Student Loan Guru answers: Wow Kiro, I hope you’ll use some of the same creativity that you used in thinking up this scheme in the work environment. If you do, I can see you going a long ways in life…or maybe life in the pen…lol This is almost as bad as using your student loan to pay off your credit card debt.
For a moment, let’s ignore the fact that this plan is immoral and unethical. Which, I must say, says a lot about yourself as well. I guess I don’t have to tell you that these aren’t the qualities that most emmployers will be looking for huh? One of the biggest drawbacks that you’ll face with this scheme is that it appears that it’s not only student loan fraud, but it could also be considered bankruptcy fraud. This can land you behind bars for a few years.
But then, let’s pretend that it is ethical and not against the law…how would your scheme look then? Well, it will still stink!
You may think that a bankruptcy will only stay on your record for 10 years, but in reality, it will stay with you your entire life. It may or may not fall off your credit report in 10 years, but there are other ways lenders will learn about it.
10 years is a long time. A lot of things can change. You may want to move back to the States, buy a home, get another job, get married, etc. A bankruptcy can affect all these things.
Also, check me on this to make sure I’m right, but I believe the new bankruptcy laws will throw a wrench into your scheme as well. I don’t think newly acquired debt will be elgible for bankruptcy. So you see, as good as it sounded at first, your scheme is full of holes. The Politicians are way better schemers than you are!
And if you get caught, then having a criminal record can really put a kink into your future plans, especially if you move abroad. Many countries will not allow ex-cons to move into their country.
Your plan would have been perfect back in the 90's, but not any longer.
If I were you I would say consolidate your student loans and get a low interest rates and low payments. shop around for the best company. And what ever you’re quoted, have them send it to you in writing by mail. Do this because lenders sometimes say one thing and when you sign up the interest or payment is higher than what they told you it would be.
What ever you do, don’t dont dont let your loans default!!! Been there done that, not fun, You then cannot consolidate and they will try to bully you and demand you pay it all at once. They will threaten to garnish you and may try! As long as you are not in default you have options.
If you really have a good excuse for wanting to get rid of your debt, (other than you ran it up and now don’t want to pay for it) looking into declaring an economic hardship or forbearance. In some instances this can postpone your payments usually 6 months to a year. Of course the interest still adds on. But you have the option to pay just the interest or nothing. When its time to repay in a year you will probably be on your feet. If not request it again. I think you can do it maybe 3 or 4 times. Check with your counselor to make sure. Then make your payments and be done with the clowns.
If you have a private student loan, you may want to look into a debt settlement, although it’s personally not a favorite with me. Debt settlement is a process in which an organization will go to your lenders and negotiate with them regarding your debt. The purpose of the whole exercise is to reduce your debt burden. If a settlement company is good it can get your debt reduced by as much as 50%. This is what a creditor needs and this is the most visible benefit of debt settlement. The amount of the debt is reduced, the repayment plan is made easy and often the monthly installments are spread over a long period. This makes life a lot more easier for the borrower.
However, debt settlement is not without its drawbacks. There are two things to worry about. First, is the cost of debt settlement. Debt settlement companies will charge huge amounts for their services. The usual range is between 10-15% of the debt amount. Paying this much amount upfront can turn your financial situation from bad to worse.
The other thing is that many of these companies just take your money and do nothing. This is the biggest reason I’m not a fan of debt settlement companies.
So Kiro, I hope you can now see that your question about putting your student loans on your credit cards and then file bankruptcy only sounded good in the thinking state. In reality, it just won’t work!
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Tagged With 10 Years, Chapter 7 Bankruptcy, Credit Card, credit card debt, debt, Declaring Bankruptcy, Handy, Interest Checks, Low Interest, Mail, Student Debt, student loan debt, Student Loans
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