Student Loans from Le Cordon Bleu Pasadena- BIG MISTAKE!!!

[bk2011sfv]

My husband went to LCB thinking he'd come out making a great income...WRONG!! He has yet to find a job that will pay him more than $13 per hour and in L.A., you can't live on that.... Subsequently, we are filing ch 7 in hopes to be able to pay the outrageous student loans.
My husband has 2 student loans. The first one is in default with a collection agency. The second was rehabilitated in Jan 2011. Will filing ch 7 cause any problems with the rehabiliated loan? Our attorney didn't think it would.

[KeithDoxen]

It depends. Was the rehabilitated loan federal or private? Federal loans generally don't experience any issues during a bankruptcy other than going into forbearance during the automatic stay. Lots of private lenders though will pretty much give up on you if you file bankruptcy and will put you into default so that they can sell your loan or get reimbursed by the guarantor.

[justbroke]

Since the student debt is non-dischargeable anyhow, it should pass through unaffected. What will happen, though, is that the loans will go into deferment until the case is discharged.

[KeithDoxen]

Since the student debt is non-dischargeable anyhow, it should pass through unaffected. What will happen, though, is that the loans will go into deferment until the case is discharged.

That's not necessarily true. Private student loan contracts almost always have a provision allowing the lender to put the loan into default at their discretion should the debtor file bankruptcy. Based on some of the threads in this forum, it appears that the student loan companies are using this power quite frequently these days. The OP has expressed a legitimate concern.

[justbroke]

I think it's too different matters. I was speaking of the ability of the lender to do anything to the debtor while the case is active. What happens to the loan, whether sold or otherwise, is a matter that I can't guess. The lender may in fact mark it as a charge off and sell it to someone else. If the debtor was already paying and had the loan re-aged (or rehabilitated), I don't see any issues.

In this particular case, the debtor already defaulted on both, with one of them rehabilitated and they other still in collections. I think that the debtor will find themselves in a similar position after discharge. Even their attorney believes this to be the case. I would still be cautious, as I think they are and you are indicating, and take all necessary precautions to understand if they'll land on their feet or head.

[bk2011sfv]

Thank you for the feedback Florida and NC! My husband's first loan is a private loan, the second is a federal loan. We weren't aware they treated these differently. I have to say this whole experience has been a crash course in financial ed.
Luckily, we live mostly on my income which is approximately 90,000 a year gross as an RN. Our plan was to take a loan out on a 401k to pay off the private loan as the interest rate on that loan is 13%! (I know, we can only blame that on being young and stupid for accepting that interest rate) and make monthly payments to the federal loan which has an interest rate at 2.3%...

[justbroke]

bk2011sfv, at least you're thinking "financially" about this! Your 401(k) plan may not be a bad idea given that it's basically refinancing one loan for another. Additionally, 401(k) loans typically need to be paid within 4 years which means you'll get it paid back quicker. You'd also be paying yourself interest, albeit not at the same potential of the market, but at least with interest. You won't be throwing money away at 13%!