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Can Student Loans be Discharged in Bankruptcy?

Can Student Loans be Discharged in Bankruptcy?

Educating and Empowering Consumers

It was my great pleasure to have a conversation with a friend of mine, Christine A. Kingston of Surf City Lawyers in Huntington Beach California.

Christine and I became friends when we met by chance while both of us were writing about what it means to include a mortgage in bankruptcy.

Christine was a vocal consumer advocate, and built her business by educating and empowering consumers by helping you understand your options, and the implications, of including a mortgage in bankruptcy.  That was around 2011.

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At that same time, I was anticipating a lot of homeowners that are going to have a really rough time for the next few years.  I was trying to identify and advocate a light at the end of that tunnel.

As a mortgage broker, I spent years becoming an expert at the guidelines around qualifying for a mortgage after a bankruptcy, foreclosure, short sale, or deed in lieu of foreclosure.  Christine was clearly someone that shares my values, and passion for educating and empowering consumers.

Student Loans in Crisis Mode?

In 2015, the way that student loan payments are calculated when applying for a home mortgage loan changed drastically.  The changes were so drastic and so fast, that it took almost a year for most underwriters to even know what happened.

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Those guidelines have changed 3 or 4 times now over the past several years, with the most recent, and most impactful update coming in November 2018.  A new Freddie Mac rule now allows you to only use .50% to calculate the payment on deferred loans, or loans in forbearance.

I did a video explaining this update on my business website at BuyWiseMortgage.com

I had reconnected with Christine after both of us being really busy the past couple of years, and I discovered that she was also focusing on helping people with student loan challenges, in her own way.

Christine has been able to get student loans discharged through bankruptcy, which I didn’t think was possible.  In general, you cannot discharge federally subsidized student loan debt in Bankruptcy.

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Is this a crisis?  I think definitely so.  After becoming a subject matter expert in qualifying for a mortgage with student loans over the past few years.  After this conversation with Christine, I am more sure than ever that we’re just getting started with dealing with student loans.

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Scott:
All right, welcome everybody. I’m super excited today. By the way, I’m Scott Schang, I am a branch manager and owner here at BuyWise Mortgage in Huntington Beach, and I have a very special guest today, Miss Christine Kingston, actually attorney Christine from SurfCityLawyers.com.

Christine:
Not too far up the street.

Scott:
Not too far up the street at all. I’m really, really excited about this conversation for a couple of reasons. So the reason I know Christine is when the market went through the crash in 2007, 2008, within a couple of years there as a lender, I figured out or anticipated that there were going to be a lot of people with a lot of questions about how to buy homes after bankruptcy, foreclosure, short-sale, deed and lieu.

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Scott:
And what was happening out there is the ambulance chasing attorney types, the complete opposite of Christine, went out, started telling all of these people, “Put your house in bankruptcy, you can save your home.” and it wasn’t the truth.

Scott:
So I was writing a lot about this, and I found Christine online who was also writing a lot about this from the attorney perspective, and how to consult and how to help people go through this. Well, we’ve kind of come full circle. Christine and I have kept in touch, and I reached out to her a few months ago and we started talking.

Scott:
And the topic of student loans came up, which is something that I am both very, very involved in and you are also very involved in as well aren’t you?

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Christine:
How do we keep parallel tracking this?

Scott:
I don’t know, I don’t know. It seems …

Christine:
Great minds think alike, yeah let’s go with that.

Scott:
Yeah, let’s go with that, let’s go with that. So that’s what we’re gonna talk about today is, we’re gonna talk about student loan debt. And really what inspired this for me is on February 25th, just about 30 days ago in Forbes, they came out with a really big report just breaking down all of the student loan debt statistics for 2019.

Scott:
One point five trillion dollar crisis, Christine, most student loan debt has ever been.

Christine:
And interest is accruing as we speak.

Scott:
Interest is absolutely accruing as we speak. This is crazy, 44.7 million people in the United States have student loans. That to me is just absolutely crazy. Probably the scariest part about that is over five million people are currently in default on those student loans.

Christine:
Yeah, when you look at the total number, it’s like 11% maybe, but that seems very small. But when you look at the number of people and then you consider that against the population, that’s a lot of people suffering right now, and we haven’t even hit the recession yet.

Scott:
No, no we haven’t. We haven’t hit the recession, and it’s inevitable, it’s absolutely coming. One of the more shocking statistics on there was the state of California, our home state has by far the most student loan balance. I wanna say it was 111 billion in California, the next closest state was Texas with 85. So we know how to do it here in California.

Christine:
USC.

Scott:
Huh?

Christine:
USC.

Scott:
Yeah, yeah.

Christine:
How much can you pay for an education? You should ask a few people up in the Hollywood Hills maybe.

Scott:
Yeah. So what we’re talking about doesn’t address any of that.

Christine:
Oh, I’m sorry. This is a different conversation. Okay, fine. We’ll get back to that later.

Scott:
But, I think they paid way more than if they were paying student loans. If anybody’s not familiar with that news story …

Christine:
Then you’re not on Facebook.

Scott:
And you’re not in California or you just don’t care, maybe you have a life. Student loan debt, it’s really, really turned into, it’s such a challenge because in high school and growing up, they really don’t teach finances. They don’t teach financial responsibility, it’s just not in the curriculum.

They teach math, but they’re not teaching you finances. So you’re going straight out of high school, going into college and borrowing thousands and thousands of dollars every single year.

Scott:
And like you said, all of these loans, while you’re in school, they’re deferred.

Christine:
Not all of them, not all of them. A lot of them are, if you’re talking about federal student loans. In that category, sorry Scott, I’ll just jump right in whenever I see something.

But, the federal loans are both subsidized loans which are the ones that don’t accrue interest while you’re in school. And then if you exceed that limit, then you get to borrow what’s called unsubsidized student loans that actually begin to accrue interest upon borrowing.

Christine:
Any private student loans, interest will already start accruing as well, while you’re in school. I had a mom come to me one time, and she said, “Oh, I borrowed 20 grand, but how come it’s at 40 now?” Well I figured it out, it was an unsubsidized student loan, interest accrued while they were in school. So watch out for those as well.

Christine:
It’s a trap. The whole thing. It’s fraught with land mines, and so if they don’t know what they’re doing, just like you said, they’re gonna sign the papers. You want the education, right? Here, sign right here, borrow more money than you can afford, and we’re gonna get you a minimum wage job when you graduate.

Scott:
Yeah. So yeah, certainly a percentage of people that graduate with a degree are gonna go on and do better things, and earn more money. But even so, you rack up $100,000 worth of debt, and even if you get a job at 75 or $80,000, that doesn’t mean that 100% of that one year’s salary goes to pay off that student debt, you’re still carrying that stuff along, paying on it, accruing interest for probably 10, 15, 20 years if you earn six figures.

Scott:
And you know how they get you is they get you with all of these repayment options. Oh don’t worry, you don’t have to pay it all back at once. That’s what you were talking about is you don’t necessarily have to pay it off when you’re in school.

Christine:
That’s correct.

Scott:
And even when you get out of school, you can take community college classes and keep deferring it in some cases.

Christine:
That’s what I see. That is a strategy that some people are employing is, it’s perpetual purgatory of education forever to avoid paying back the student loan debt.

Christine:
I find that to be a troublesome problem.

Scott:
Do you think it’ll work?

Christine:
I don’t know, I don’t know that number one, I could stay in school until I’m 80 or 90, if I live that long. And then, how much can you afford, and at some point, I think you’re gonna have to rip the bandaid off and start paying it back or do something. Stop the bleeding.

Scott:
Yeah. Let’s talk about repayment options a little bit, because they do give you a lot of repayment options. The most common, now obviously you have what’s called a fully amortized payment. And we run into these things from different angles.

So I run into this from the purposes of qualifying for a mortgage, we’re gonna talk a little bit about how you run into this in the process of bankruptcy and some of the conversations that aren’t being had around that because there’s not very many people that know what you know.

But the repayment options, there are a lot of options. The most common, well it’s not the most common, but it probably is one of the more common ones that I see that’s an income-based repayment.

Christine:
Yeah, those are the loans that are only available for federal student loans. So if there’s a private loan out there, then that won’t apply. So it only applies to fed loans. So all your Stafford, HEEL, FFEL, any kind of federal loan will have that available, absolutely.

Scott:
So I’m sure on here somewhere it breaks down the percentage, but do you know what the percentage of-’cause I know my wife has student loans and she has a combination. So she has some that are, I think some that are federal and some that are private. Is that pretty normal?

Christine:
There is a very small percentage, my understanding is that the total of one point five million, only about one to two percent are private loans. So take that total nut, one point five trillion, I’m sorry and then maybe one to two percent of that are private student loans. So it’s a very small portion of the total problem that we’re having are private loans. So the rest are federal. So the majority of what people are borrowing are federal student loans. If that’s the percentage.

Scott:
The federal loans have the most flexibility with the repayment options and things like that. So that’s your highest and best opportunity to get in a hole heap of trouble.

Christine:
Absolutely, but there’s a limit. See the good news is, there’s a limit to what you can borrow, but there’s also a problem with that because tuition skyrocketed and student loans are still capped. And so what they’re doing is, they’re exceeding the federal student loan limit, and they’re forcing people to borrow more and more money which is private student loans.

Christine:
And the majority of the private student loans that I see are all co-signed. So now you’re getting two generations of people on the hook, mom and the kid, or dad and the kid and then they’re all hosed afterwards when the kid can’t pay and the mom and dad’s trying to retire.

Christine:
And so they’re all calling me going, “What do we do?” And I’m looking at multiple cases because I can’t file a bankruptcy for mom and kid together, only married couples can file a bankruptcy jointly, so it becomes this huge conundrum legally.

Scott:
Let’s ease into that conversation right now, but what I wanted to lead that off with is, the public service loan forgiveness program. I run into that a lot on my side, on the loan side because people are typically in an income-based repayment program because they work in the public service, either school teachers, police, local governments, things like that. And the public service loan forgiveness program is essentially you make payments for a period of 10 years and then you can apply to have your student loans forgiven.

Scott:
And you and I were going through these numbers, and it’s a little bit scary. So these numbers are from 2018, September, 2018. There’s been 49,669 applications submitted for the loan forgiveness, 32,409 of those were denied, 423 of them were approved and a total of 206 people have had their loans forgiven.

Christine:
Yay!

Scott:
That’s as good of a program as they make it seem right?

Christine:
Right. And just to bookend what you were talking about. Any programs that are available for some kind of a lowered payment plan are all under the umbrella called income sensitive repayment plans. They have income contingent, income based, pay as you earn, revised pay as you earn, there’s multiple programs.

Christine:
And that’s part of what you were talking about in helping them out. Keep the loans in good standing, and they could pay as little as zero or up to the regular payment on those.

This is an alternative, public loan forgiveness is an alternative program to the income sensitive based programs or income sensitive programs. It’s similar, because you’re making lower payments over a term of 10 years, but you gotta be careful. It’s not a whole, 100% loan forgiveness, this is a partial loan forgiveness under public service.

Christine:
The website, and I’ll make sure that you put this up for everybody too. The website that I direct everyone to is studentloanborrowerassistance.org and it’s assistance with an A-N-C-E at the end. So it’s studentloanborrowerassistance.org.

That is what I call a PhD in student loans. I direct everyone that I know there and all my colleagues and attorney friends as well.

Christine:
And it’s great place to start for all of those payment plans, for the public loan forgiveness and here’s why. Those lenders and loan servicers are not gonna tell you what Scott and I know. They’re not gonna answer your questions and they’re not your friend.

Christine:
And this website is put on by consumer advocates like myself, other attorneys with the National Consumer Law Center. You can’t hire ’em, it’s not a law firm that you can hire, they work with people like me and they sell books to lawyers, but it’s great public information on this website.

Christine:
So start there with all things student loans. Get on one of those payment plans and figure out this public loan forgiveness if that’s what is meant to be. Otherwise, I help people when that fails, when those programs don’t work and they still can’t figure out how to make a payment, or the lenders won’t negotiate with them which I find often happens too.

Christine:
What do you see on your end with mortgages Scott? How does this look like from your end when they’re on a public service forgiveness, can you get ’em into a house?

Scott:
Yeah, yes absolutely. Well we can, and this is another one of those crazy, and this is almost as crazy of an issue as we had with the bankruptcy, foreclosures and short sales. In June of 2015, they started changing the guidelines for how you treat student loan payments.

Prior to June, 2015 if your loan was in forbearance, all we had to show was that you didn’t have payments for the next 12 months and we could ignore your student loans.

But after the crash, well, it took them a while after the crash ’til 2015, then they decided, “Well, in anticipation of what your payment could be in the future, we’re gonna come up with these completely, we’re just gonna pull some numbers out of the air.” And the number they pulled out of the air was (1%) one percent.

Scott:
So the number that they pulled out of the air for FHA, USDA, Fannie Mae was doing it for a little while, is if you didn’t have a payment, if you weren’t making payments that would pay off your loan at the end of the term, you had to use one percent of the balance as a calculation for calculating your debt to income ratio.

Scott:
So let me put this into perspective. The most student loan debt we’ve ever done a mortgage for was just under a million dollars. And they were an income-based payment, so their total payments were probably $500 between the two borrowers, but with a million dollars worth of debt laying out there.

Scott:
So we were allowed to use the income-based payment. Now the challenge is, you have two different types of conventional financing. You have Fannie Mae and Freddie Mac, then you have all your government programs, your FHA, VA and USDA.

Every single one of them treats student loans differently, and every single one of them have changed their stance no less than two to three times in the last three years.

Scott:
So it gets really, really complicated and it gets crazy and it gets a little bit confusing, but you can absolutely get a loan with almost any payment. If a loan is in forbearance or if it’s deferred, Freddie Mac came out, this is new for 2019. So at the end of last year, Freddie Mac came out and said, if it’s in forbearance or if it’s deferred, you can use a half percent, everybody else is one percent.

Scott:
Fannie Mae will allow you to qualify for a home mortgage with a zero payment as long as we can prove it’s an income-based repayment. I get a lot of those, we get a lot of those.

Christine:
I think the key point is, and I, correct me if I’m wrong Scott from your side as well as mine. I think the key thing to remember is these student loans absolutely need to be in good standing to either get a home mortgage or even when you’re talking about coming to work with me in a bankruptcy, one of the requirements under undo hardship in a bankruptcy case is acting in good faith, making a good faith effort to make a payment on that debt. Deferment, forbearance, income-sensitive plans, anything in my world is good faith.

Christine:
And especially if they wanna buy a house, they wanna keep those loans in good standing. Those payment plans under the fed loans by the way Scott, best thing in town outside of bankruptcy. So if they’re not gonna come into bankruptcy and they can’t afford a regular payment, those income sensitive plans for the federal student loans is the way to go period. There is nothing else out there.

Scott:
Yeah, they’re very flexible and I get the impression, I haven’t gone through the application process myself, but I get the impression that you can self declare what your expenses are, so that you can show less disposable income to keep your …

Christine:
They don’t take expenses into consideration. They don’t take expenses. No, it’s based on the number of dependents in the household. The income and the number of people in the household. And I think they’re running, and there’s calculators out there obviously, so the student loan borrower assistance website will have hyper links to all the forms that are required.

I don’t know if they have a calculator, but I’m sure if you go find-let’s say for example, the revised pay as you earn program is the only one that’s 20 years instead of 25. So let’s keep that in mind, shorter term, get rid of it sooner.

Christine:
But they’ll run calculators and they’ll tell you whichever program you’re eligible for, and they’ll give you the payment plan on each one of the programs. So run a calculator based on the numbers and they’ll have to educate themselves and just look at the website and figure out which one’s the best for you and get on it.

Scott:
You mentioned earlier, I wanna dive a little bit into, I wanna dive into the bankruptcy because you kind of blew my mind when we started talking about that. But real quick before we do that, when you talked about loans being in good standing. So if you default on a federal student loan, that’ll prevent you from getting a government loan in the future.

Scott:
So FHA is tied to the same reporting system as government student loan debt. It’s called Cavers, so that’s another thing. So you absolutely wanna keep it in good standing, because defaulting on federal debt, even if it’s student loan debt, can prevent you from getting a federal mortgage loan, federally insured mortgage loan in the future.

Scott:
But let’s talk about bankruptcy, because student loan debt cannot be discharged in bankruptcy, right attorney Christine?

Christine:
What? I’m sorry, is that what you’re being told? So here’s the thing.

Scott:
That’s the general …

Christine:
You’re right, that’s the general consensus. I know, it’s like everybody says that. So here’s the thing. Don’t tell me it can’t be done, because I’ve got one point five million dollars in student loan debt discharged under my belt. I’ve done this, I’ve been doing it since 2010. So no, it’s possible, it’s not easy but it’s possible absolutely.

Scott:
What does that process look like? ‘Cause again, I don’t want this to feel like a gloom and doom kind of a conversation, but the signs are all there. We know the economy’s gotta slow down. We’re back in a normal cyclical economy, we’re gonna have our ups and downs again. Fed already came out last week and said they’re not gonna change the rates and they anticipate potentially even lowering the rates by fourth quarter of 2019.

Scott:
So we know they’re anticipating things slowing down a little bit. Things slow own a little bit, people start having challenges. And if they’re absolutely buried in student loan debt, what options do they have?

Christine:
Brace yourself, it’s gonna be a bumpy ride. The option is to consider bankruptcy. Usually, I like to make sure that I’m the last resort when it comes to student loans, ’cause I tread carefully. I’ve gotten a few of my clients in the middle of litigation. So for example, there’s another game people can play if they’re a married couple and one of the spouses has a lot of student loan and the other one has nothing.

Christine:
If they file married separate, they apply for those income sensitive plans, get the zero payment, and then go back and amend their taxes and file jointly. If you’re going to do those things, please don’t call me. This will not work out well for you.

Or hiding income, or things like that. So what I’m really looking at is the potential clients that are great for student loans in bankruptcy, either they’re not a qualified education loan.

That is one theory that I can use. What I mean by that is, the offshore medical schools, offshore helicopter schools and all those for profit colleges where they were never titled or funded and never issued fed loans.

Christine:
I’ve seen some great success on those and I’m able to discharge those on summary judgment which is really good. It keeps the cost down a little bit for the clients to get that done. And so those are automatically dischargeable, except for the fact that I still have to go through the gauntlet of litigating and filing a lawsuit.

Christine:
So it requires that I not only open a bankruptcy case, but then I have to file a lawsuit inside that bankruptcy case called an adversary proceeding. That’s why this is a little bit more challenging and it’s a little bit more difficult and most lawyers won’t take these cases because it requires litigation.

Christine:
So being a trained litigator, that’s where my niche comes in and fits nicely for what I like to do to help my clients is pretty much get aggressive and file federal student loan lawsuits.

Christine:
The other theory is undue hardship. That’s a three-part test. So it comes to us by case law under Brunner, in California ninth circuit, it’s Pena, In re Pena is the case that brought it in.

Three steps: Present inability to pay, circumstances that are beyond your control that prevent you from increasing your income, cutting your expenses and paying the loans back, and then the third prong on that test is acting in good faith, make a good faith effort to pay the loans back.

Christine:
Now, it’s easier said than done. I call it, “Let’s throw the spaghetti against the wall and see what sticks.” Used to be medical conditions would get ’em through, now I’m looking at income to debt disparity.

‘Cause I see the same thing you do, I’ve got a dental grad with an $800,000 student loan and a four millimeter disk bolt in her back, and she’ll never be able to be a dentist.

So that’s one case that I’m getting ready to take to trial because it’s significant, it’s a significant amount of money, it’s a significant disparity, but she also has medical conditions to support her concerns.

Christine:
It’s still not gonna be easy. They haven’t given us an offer to settle, and we’ll probably end up having to take it to trial. So the Department of Education is not letting this go lightly, and if you read up on the news, they’re also letting all of these other rules go, they’re not even practicing taking care of people on the sexual harassment side of things.

Christine:
So I don’t think anybody’s watching with regards to student loans at this point, so that’s why I’m not shocked by the low success rate for the public loan forgiveness program that they’re having.

Scott:
Seems like it was a good idea, but it maybe wasn’t thought out.

Christine:
All government programs start out as a great idea Scott, and then they just don’t get well thought out and the taxpayers foot the bill.

Scott:
I have a good friend, Sam Parker, he actually works with credit repair and helping people with credit restoration. He asked a question, is there ever a statute of limitations on federally backed student loans? What do you know about that?

Christine:
Bad news. The federal student loan lenders can hunt you until the day you die, and if you die with any assets, then they can come after your estate. No, actually I don’t know if it’s ’til dies on the federal student loans.

They may be able to, let’s couch that, they may be able to come after your estate, but most of the time it may die with you when you pass. So no statute of limitations.

Scott:
So because it’s federal, no statute of limitations.

Christine:
No. They can collect forever. Now the private student loans on the other hand, here’s for you Shawn or Sam right. So on the private student loans, there is a statute of limitations. And it depends on what document they sign, whether they signed a promissory note or a credit contract.

Christine:
The promissory notes usually come out of Sallie Mae and Navient, and Navient and Sallie Mae both issue federal and private loans. But when they do the private loans, it’s a promissory note. In California, there’s a six year statute of limitations on promissory notes.

Christine:
And the national collegiate student loan trust and the private student loans that are, there’s this other thing called a non-negotiable credit agreement. If that’s what you signed, then it’s a four year statute of limitations on the ability to collect on the debt.

Christine:
We can explain statute of limitations if you want, but I hope that answers the question for him. Nothing on fed loans.

Scott:
Okay. So if you’re, recap real quick. You’ve gotta do everything above board. If you’re doing crazy, sneaky stuff to try to not pay your student loans, you have zero chance of trying to go after them for one of these technicalities.

And it sounds like that’s what you’re talking about, these are technicalities, these are potentially loopholes, there is no clear path to getting student loans forgiven. But if everything, if the stars line up, it sounds to me like you’re getting, have you actually had to go to trial on any of these, or are most of them settling?

Christine:
I’m one to one. So I’ve taken one trial and I’ve won one trial. The bulk of them, and right now I probably have about no less than seven to 10 litigation cases pending right now. I had about 14 last year, and a big chunk of them settled as new cases were starting to roll in.

Christine:
The majority of them are negotiating settlements. A lot of times, people-listen, we all wanna pay back our debts, I get that. And it’s just that moral end to contractual obligation that people wanna fulfill. So a lot of times they’ll come to me and say, “Listen, I just wanna reduce it and I wanna control it.”

Christine:
Here’s the problem that I have with that is, if you’re on an income sensitive payment plan and your payment is zero, and you want me to litigate in a bankruptcy case, if I make a settlement, you’re making a payment. I can’t get you on a zero settlement unless we get rid of the debt altogether.

Christine:
So sometimes it puts ’em in a, it puts ’em in a box where, bankruptcy may not even be the best option, unless it’s really harsh. I’m keeping an eye on the news feed, and I’m hoping that they change the rules and maybe give us some other standards to discharge student loans before [BAPCEBA 00:27:14] came around in 2005.

Christine:
If we back date a little bit, then maybe we can get some more student loans discharged without this extreme undue hardship theory, but otherwise, it’s a harsh remedy. But the other thing too on the income sensitive plans, if they finish the 20 to 25 years, it will be administratively written off.

That’s the beautiful thing about those programs, except they get a tax bill at the end. So that’s the only difference between what I do in bankruptcy and then the payment plans that are available outside of bankruptcy is, when I’m done working with them, I’ll do a settlement and part of that settlement will negotiate that there’s no tax consequences at the end of the payment, because it will have been discharged in the bankruptcy case. So we do get that benefit for them.

Scott:
Is bankruptcy the only path to get them to start talking to you and negotiating with you? Have you tried it outside of bankruptcy or is that the only thing that gets their attention?

Christine:
It definitely gets their attention. Outside of bankruptcy again, we gotta separate the herd, fed versus private student loans. This is really important because they’re quite different.

Christine:
On the federal student loans, it’s all regulated by the federal government, and you know the federal government and their rules. So under the fed loan programs, and it’s in the code of federal regulations, 18USC something or other.

So it’s in the code of federal regulations that basically says, “If we’re gonna negotiate our federal student loans, they’re only going to get no more than 10% off the principle and a little bit of that interest reduced.” It’s really non-negotiable.

Christine:
Private student loans, absolutely. Outside of bankruptcy, they’re fully negotiable like any other debt. But that’s the problem with the fed loans, they can hunt you forever, they’ll never go away, they don’t negotiate and all you get is these government payment plans that they think is the best game in town. That’s it.

Scott:
Do we need to add to the list, the only thing you can count on in life is death, taxes and student loans never going away?

Christine:
That’s right. Welcome to Earth.

Scott:
Oh no!

Christine:
We get you coming and going. This is it. That’s why they’re so boxed in right now, and the options are so limited. It’s nice to hear that they can still buy a house while that big ole gorilla’s following them around. So I think what you’re saying is probably the best thing to do is look at those payment plans.

Christine:
So go check out the student loan borrowers assistance website, they are simple forms to fill out, you can do it yourself. Some lawyers will charge you for these services, if you need my help, sure I can help you fill out the forms for a small fee. But this is something they should be able to do themselves.

Christine:
Back in my day when we graduated, we had to consolidate our own loans, there were no companies out there doing that.

Scott:
So if somebody is out there watching this or listening to this, where are they right now in their lives that they should probably consider calling you and having a conversation?

Christine:
I like my clients when they suffer a long time. I like ’em broke and struggling. What I find is the younger people don’t do as well unless they’ve got some significant medical conditions that we can prove up that they know are gonna prevent them from ever repaying this date.

Christine:
For example, my dentist who will never be a dentist because she can’t even get herself off the sofa most days. Unless there’s another program, and you’ve looked at all those public loan forgiveness, closed school, there’s also a total and permanent disability discharge on the fed loans. So there’s a few other programs that we haven’t talked about, and you can see that on the website, the studentloanborrowersassistance.org.

Christine:
So if none of those work out and there’s still no possible way this will ever be paid back, those are my potential clients. Other people that should consider it, anybody my age and older, I’m over 50.

Christine:
So if you’re in your late 40s, 50s, you’re headed in towards retirement and you still haven’t figured this out, then it’s always a great opportunity just to sit and have a conversation with me.

Christine:
We can strategize about different options you might have, things you considered, should you stay out there and suffer longer? And then sometimes, maybe you just carry it with you to your grave and you’ll unfortunately, this is the sad part is, a lot of people are gonna die without much money.

Scott:
I saw something that said over 50% of people getting ready to retire have no retirement savings, and student loans definitely aren’t helping.

Scott:
Well let’s end this on a little bit of a positive note, and let’s talk about qualifying for a mortgage after this, after all of this.

Christine:
Great.

Scott:
Yes, you can qualify with the student loans, but if you are now buying a home with the student loans and you have to go through the bankruptcy, this is how you and I met originally. It’s not that big of a deal.

Scott:
If you are using a …

Christine:
Hang on. Could you tell my clients that one more time? So you’re basically saying that bankruptcy is not that bad, and we can still buy a house after bankruptcy?

Scott:
Absolutely. Using the government, using an FHA government loan after bankruptcy, 24 months, 24 months. You don’t even recognize 24 months. If you got yourself into bankruptcy, you’re not gonna wanna go out and buy a house probably for a couple of years anyhow because a little bit of sticker shock or not sticker shock, but a little bit of gun shy.

Scott:
But conventional, even a Fannie Mae conventional loan is only four years.

Christine:
That’s fantastic.

Scott:
Four years for conventional, two years for VA, two years for FHA and three years for USDA. So four years or less, you could be completely back up on your feet, completely recovered and starting your family anew.

Christine:
So why would they wanna struggle to pay their debts back for five years when they can go through a bankruptcy, dump it today and then get into a house in two? Right?

Scott:
Because most people are ethical, and if they borrow the money, they feel obligated to pay it.

Christine:
I get that part, but ethical, this is legal. Here’s the thing that’s important for people to understand too. First of all, bankruptcy’s legal, it goes all the way back to the bible, it’s in Deuteronomy.

Christine:
Don’t think our government got all that creative, but it’s actually in our constitution too. Why? ‘Cause they swiped and deployed it out of the bible. And you can file bankruptcy one time every eight years …

Scott:
We don’t have to have a president in the U.S.

Christine:
Yeah, they got rid of all of that stuff, and Donald Trump’s done it so many times that he’s making a sport out of it. So how can it be that bad if our President’s done it?

Scott:
Easy, easy.

Christine:
Sorry.

Scott:
You’re in Orange County gal, you can’t be talking about that in Orange County. [crosstalk 00:34:22] I get those calls all the time Christine, I get those calls all the time. People are like, “I don’t wanna file bankruptcy.” I’m like, “No. There’s no shame in bankruptcy.”

I had to go through bankruptcy after the crash, I’m a mortgage lender. I lost my business, I lost everything when everything crashed.

Scott:
That’s how I got as much experience as I had is because I was figuring out how to recover as well. But no, I don’t know if I would necessarily say it’s normal, but it is absolutely 100% a legal option and it’s available to everyone.

Scott:
And here’s the thing, a judge has to determine whether or not you’re eligible. So it’s not like you just say, “Hey, I can’t pay my bills.” A judge is gonna look at it and say, “No, you’re right. You’re insolvent, we’re gonna give you a fresh start. We’re gonna push the button and then you can start over again.”

Christine:
And it accelerates it too. When you’re looking at time, the time value of money, and if I can propel you out of debt today, let’s say you’re paying $500 a month on your debt and I get rid of that number, now you’ve got $500 a month in your budget.

You could be saving for your down payment so you can get into that house faster and you can still qualify. Isn’t that fantastic?

Scott:
Yeah. Anybody that’s filed bankruptcy has been shocked by all of the credit card applications that show up about one week after the bankruptcy, after the discharge is filed. Now you’re on the mailing list, there’s no risk.

Christine:
You can get credit, it’s not a problem.

Scott:
You know what’s funny is, all of this comes together. You know what all of those income, there was a mortgage program that was very, very similar to what we’re talking about in these student loans, and they’re now called toxic. Those are negative amortization loans.

Christine:
I had one. Option ARM, pick a pay.

Scott:
Option ARM, pick a pays, and that is what these income based repayment plans are, is you’re not even paying the interest and your balance continues to grow until the next thing. Hopefully the balances aren’t the same, but Christina, I think that’s about it for this conversation. We could go on for hours and hours.

Christine:
We have. We could do this and this is why we’re putting it on camera for you guys today too, because we wanna make sure we get this information out to everybody. And all my clients are gonna be calling you after bankruptcy Scott, so we’re gonna make sure that we network you to my team and my clients and anyone that I come into contact with.

Scott:
And not everybody knows these rules, most lenders don’t know these rules about student loans or bankruptcy. On my website, Find My Way Home, I literally probably get three to five calls a day from people that were told the wrong information about student loans, qualifying for a loan with student loans from all over the country.

Scott:
And I’m telling you, if somebody tells you no, that might just mean that they don’t know.

Christine:
Don’t give up.

Scott:
That’s right, that’s right. So Christine is at SurfCityLawyers.com, you can contact her through her website. We’re gonna put those links that she mentioned for the student loans here in the transcription of this.

Scott:
And if anybody out there has any questions about any of this stuff, this is the reason why Christine and I do this. Because if you’re in a situation and you’re, if you’re in a painful, you kind of joked about your clients being in pain and hurting for a long time.

Most people are by the time they ask for help, and the challenge with that is, now you’re in a vulnerable position and if you don’t talk to somebody like you or talk to somebody like me who’s really gonna care about you and look out for your best interests. You’re not talking to a salesperson who’s gonna tell you what you want to hear.

Scott:
And I saw the fallout from that, from all of those bankruptcy attorneys that just took advantage of people that were losing their homes. So this stuff is really, really important to talk about.

Not all attorneys, not all lenders are created equal. Christine and I are here having this conversation so that you the consumer can be a fly on the wall and listen to what professionals talk about when they’re not trying to sell you something.

Christine:
Yeah. And it’s the work that nobody else wants to do. It’s so much easier to say, “No, I’m sorry. You can’t discharge student loans in bankruptcy.” or “No, you can’t get a house because you have student loans.”

Christine:
That’s the easy way out. Scott and I have taken the hard way by figuring this out, and we’ve been seeing some success which is why your phone is blowing up and I’m getting all the referrals from all the colleagues, because we’re the ones that are doing it and we’re seeing some results.

Christine:
So Scott, keep up the good work too, and we’ll stay in touch for sure. And thank you so much for having me on, I appreciate you.

Scott:
Absolutely and my pleasure. And we will …

Christine:
And thanks Sam, I hope I answered your question.

Scott:
Yes, yes. All right Christine, you have a great day and we’ll talk to you soon. Thank you so much.

Christine:
Awesome. Thanks so much again. Bye.

Scott:
All right, bye.

Working with Professionals

I can not emphasize enough the importance of hiring a professional if you need a bankruptcy attorney, loan officer, or Realtor.

When you call a lender from a TV or radio commercial, or click an ad you saw on the internet that has a catchy headline, you are playing competence roulette.

I personally have been in the business for close to 20 years, and started this website 10 years ago to educate and empower consumers.

We have had over a million consumers visit this website and I have answered many thousands of questions from folks all over the Country.

If you are trying to buy or refinance your home in California, I can help.  You may ask questions about your options below, or shoot me an email directly to scott@buywisemortgage.com.

If you are outside of California, I can introduce you to a loan officer from our Expert Network that I personally know and trust.

About Your Expert

Scott Schang

A 20 year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues, and making sense of complicated real estate and mortgage topics on this website since 2007

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