Pay student loan with credit card then file bankruptcy

One of the greatest options for borrowers in financial struggles is changing the repayment plan. If you have federal student loans, you have access to multiple repayment options. You can check each option and decide which plan is the most suitable for your finances. However, in most cases, Income-driven repayment plans are the most affordable ones.

These plans are based on income and family size. If you earn less, your monthly payments will also be lower.

Besides, Income-driven repayment plans have different types. Each varies depending on the payment rate and period. Plus, there exist differences in eligibility requirements.

You can contact your loan servicer to discuss which plan is the best for your challenges. Additionally, keep in mind that you can qualify for forgiveness through Income-driven repayment plans. Once you complete the payback period, the remaining debt is wiped out.

Unfortunately, if you have private student debt , you cannot qualify for Income-driven repayment plans. So, instead of filing bankruptcy on student loans, you need to act fast and find a debt management strategy.

First, you should contact your lender and explain your challenges. Although the lenders have no obligation to help you, they might still appreciate your good faith. Besides, it can be a good idea to refinance your student loans. Refinancing can help you get lower monthly payments if you find a loan with a lower interest rate. However, this option can also be hard to achieve because refinancing requires good credit performance.

So, instead of waiting till you need bankruptcy, act fast and refinance as soon as you are in financial trouble. Although bankruptcy on student loans can wipe out your debt obligations, it comes with multiple negative consequences.

First, its impact on your credit performance can last up to 7 or 10 years. During this time, you will face challenges renting an apartment, finding a job, getting a new loan, etc. Hence, it is advisable to consider all other possible options- repayment plans, forbearance or deferment, forgiveness or discharge programs- before you file for bankruptcy. If you are not sure which option is the best for you, you can contact our debt specialists. Debt experts, like those in Student Loans Resolved , have helped hundreds of borrowers with similar concerns as you have.

Experts can analyze your finances and advise the most effective debt resolution strategy. Contact us through free consultation now for a debt-free future. CALL Do you qualify for loan forgiveness or lower monthly payments? Samira Published: November 29th, What is Bankruptcy?

How to Start Bankruptcy? Chapter 7 vs. Chapter 13 Bankruptcy When people think of bankruptcy, they expect to get rid of the total debt without paying a penny. When to File Bankruptcy? Drawbacks of Bankruptcy If you want to request bankruptcy on student loans, our advice would be to explore all other options first. Expected Changes to Bankruptcy Rules Recently, there appeared news that bankruptcy rules will change.

Current Bankruptcy Conditions As mentioned, declaring bankruptcy is hard. Expected Changes in Bankruptcy Student Loans In October , the Federal Student Aid chief operating officer informed Congress that the Education Department is working on improving the conditions for bankruptcy cases.

Legislation for Bankruptcy Decades ago, the rules for bankruptcy on student loans were different. What about Private Student Loan Debtors? Options for Financially Struggling Borrowers As mentioned before, even if you have financial challenges, you should not rush to request bankruptcy. The most important reason consumers should not choose this option is that it strips away the benefits of their federal loans.

This strategy removes the safety net that comes standard with federal loans. Flexible repayment programs and plans that make accommodations for low income-earners are just some of the benefits of federal loans. These programs help struggling consumers, and this type of assistance is not typical available from credit card companies. It is possible and could save you money.

But the chances of success are low and the risks are high. Unemployment, an injury or illness in the family, and other unforeseen circumstances could easily put a dent in this plan. Ok, so hopefully we have convinced you that putting student loans onto a credit card is a bad idea. Wait, what? You thought bankruptcy was to be avoided at all costs…? The idea behind this strategy stems from the fact that student loans typically are not discharged in bankruptcy.

So the idea is to move the loans to credit cards where you can make them disappear. For several reasons. Student loan debt is still exempt from bankruptcy even when it is reorganized or refinanced through other forms of credit.

That leaves the debtor with the obligation to repay the balances and with the higher interest rates that are likely to come with them. Oh, and there is also the possibility of being hit with legal charges if the court believes that there was intent to defraud the lender. Pursuing bankruptcy intentionally is like driving your credit score off a cliff. Opening multiple credit accounts for this purpose will hurt your credit, and bankruptcy will have an even bigger impact.

The lasting effects of this are costly too, as future loans will become much more expensive due to the increased risk you pose to lenders. Purposely rearranging your student loans in this way with the end goal of discharge via bankruptcy is considered fraud and can land you in prison.

In other words, if you genuinely thought that moving student loans to credit cards would help manage your debt and pay it off, you may not be charged with fraud. Student Loan Debt in Bankruptcy. I paid off some student loans with a credit card. Can I discharge them in bankruptcy? Find out if you can wipe out credit card debt in bankruptcy if you incurred it to pay student loans.

Discharging Student Loans in Bankruptcy Loans made for educational purposes are treated differently in bankruptcy than other types of unsecured debt. Charges for Luxury Goods If you made the charges within the 90 days before you filed for bankruptcy, the lender may claim that they are not dischargeable because the charges were for "luxury goods or services.

To determine if this is what you did, the courts look at a number of factors, including: the timing of the transactions the interest rate on the student loan compared to the interest rate on the credit card the amount of the transaction whether you transferred the balance in a lump sum or as student loan payments came due, and whether you were insolvent owed more debt than your assets were worth at the time you made the charges or experienced a change in circumstances after you made the charges.

Example 3 When Alice lost her job, she contacted the bank to work out a reduced payment plan for her private student loan. What Is the Procedure for Challenging the Discharge? If the bankruptcy court finds in favor of the credit card lender meaning it rules that you cannot discharge the charges in bankruptcy , here's what might happen: you will remain liable for the credit card charges the court might find that your entire credit card balance is not nondischargeable, not just the payments that went towards student loans you will probably have to pay your attorney a separate fee for defending the lawsuit, and you may have to pay the credit card company's attorneys' fees and costs.

Alternatives to Discharging Student Loans in Bankruptcy If you can't discharge your student loans in bankruptcy, you may have other options for handling your student loan payments, including loan consolidation, income based repayment plans, and even student loan forgiveness programs.

Talk to a Bankruptcy Lawyer Need professional help? Start here. Practice Area Please select Bankruptcy Debt Settlement Foreclosure.

Zip Code. However, unreliable income or payments may make up a large amount of your total monthly budget, and you might have trouble finding a loan. While each state has its own garnishment laws, most say that Social Security benefits, disability payments, retirement funds, child support and alimony cannot be garnished for most types of debt. Student loan settlement is possible , but you're at the mercy of your lender to accept less than you owe.

Don't expect to negotiate a settlement unless: Your loans are in or near default. Your loan holder would make more money by settling than by pursuing the debt. Forgive the federal student loan debt for all borrowers age 65 and older. These borrowers are unable to repay their student loans because they are on fixed income, leaving almost a third of borrowers age 65 and older in default on their federal student loans.

Can bankruptcy wipe out student loan debt? Asked by: Prof. Nyasia Kub Last update: January 13, What circumstances does a person need to prove to have their student loans discharged through bankruptcy? What happens if you never pay your student loans? Do student loans go away after 7 years? Can private student loans garnish Social Security?

How can I legally get rid of student loans? Loan Forgiveness Programs. How can I avoid paying back student loans?