Student Loans Guaranteed By Parent and Bankruptcy

Recently I have been seeing a lot of debtors who have guaranteed their children’s student loans. When I am asked whether I can do something about those loans in Chapter 7 or Chapter 13 bankruptcy, my usual answer is no.  The reason for this is that the government guaranteed student loans are not dischargeable in bankruptcy, except in extreme hardship situations, regardless of whether the borrower is the student or the parent who guaranteed the loan. Unfortunately, it is not uncommon for the student to default on the loan.  In those situations, the full weight of the loan will have to be carried by the parent who guaranteed the loan.  If the parent is already having difficulties paying his/her bills, this may be the final straw to push the debtor into bankruptcy.

When the debtor tells about this situation, I, as a bankruptcy lawyer cannot offer much help. Since the bankruptcy court here in Rochester has taken a position that in Chapter 13 bankruptcy the student loans will be paid, along with other unsecured creditors, pro rata, even a five year repayment plan might not reduce the loan significantly.  In Chapter 7, the student loan would not be dischargeable.

As much as it pains me to say it, it is a bad idea for a parent to cosign a government guaranteed student loan. Further, parents guaranteeing the loans of their children face having student loans risk as they approach retirement. If the repayment of the loan is deferred by the student, this will keep the parents exposed to the debt until it is repaid, sometimes decades later. It entwines the two generations financially long after the student is an adult.  If the parent is approaching retirement, it is not likely that the parent would have the money to pay off student loans.

If you are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a bankruptcy attorney.

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