Should a 21 year old file bankruptcy? Please help!

[fr3shstart]

Good afternoon. I apologize in advanced if I am in the wrong forum, please redirect me if need be.

I'm 21/F living with my SO of 3 years. We make a combined income of ~40k (neither one of us have degrees yet), with a monthly take home of about $2200. I bring home about 1200/mo. My expenses are listed below:

$400: rent (my half)
$50: electric
$60: internet
$75: phone bill
$300: CC ($300 limit that I max every month, but also pay in full)
Groceries/sanitary products: ~$150

Total= $1185. As you can see, there's not much wiggle room, but we get by fine. My SO doesn't have a credit card so she has some extra per month, but not much.

Debts:

SL1 (fed): $2,123 (deferment)
SL2 (fed): $3,560 (deferment)
SL3 (private): $11, 170 (my dad grudgingly pays this).
private university: 13k (in collections)

Total= $29,918


Story: I foolishly attended a private (45,000/year) university straight out of high school. I got some partial scholarships and was approved for a $10,000 loan to cover my first semester. However, my second semester loan request wasn't approved. I attended school for the second semester anyway, thinking that my dad would find the money somewhere (17 y/o me). That didn't happen. Now I owe the school 13k for transcripts that I don't care to have. I tried going to my local community college to enroll, thinking that I could just start over as a freshmen using my high school transcripts, but they informed me that, no, since I had attended university, only those transcripts can be used (needed to verify the 2.0 gpa needed to get into the school). It will take me some time to pay off the 13k to have my transcripts released. I have been shopping around for jobs, but without a degree I haven't been able to find anything higher than 12/hr which is my current rate of pay.

My question is this: Should I file for bankruptcy to discharge the 13k? (I'm aware that my SLs cannot be discharged). I know it will remain on my credit for 10 years, but if I get the debt discharged I'll be able to go to school, get a higher paying job and work to repair my credit when I'm older. I know that I could eventually pay off the 13k, but I don't want to wait until I'm 23 or 24 to go back to school. Is this a good idea? If not, what is your advice?

Thanks so much!

Also, I should add that my family is unwilling to pay the debt/loan me money and I am unwilling to ask my SO to help me pay this debt, as she has her own bills to deal with.

[justbroke]

If you're getting by "fine" then you should continue down this path of paying your bills. A Chapter 7 is a bazooka and you are considering using it on a mosquito ($13K). I discharged over $1,000,000 in my Chapter 7. The bazooka was necessary. Looking at your $13K you wish to destroy with the bazooka makes me realize the following; your student debt is immune to this bazooka.

The main reason I say to wait is because you're young and you must realize that the bazooka, the Chapter 7, is a once every 7 year shot at a target.

You may want to see if their are other programs where you can consolidate the loans and get an income based repayment plan in place. As of 2005, Student Loans are extremely difficult to discharge in bankruptcy.

[bcohen]

Debts:
SL1 (fed): $2,123 (deferment)
SL2 (fed): $3,560 (deferment)
SL3 (private): $11, 170 (my dad grudgingly pays this).
private university: 13k (in collections)

Total= $29,918

...

Now I owe the school 13k for transcripts that I don't care to have. I tried going to my local community college to enroll, thinking that I could just start over as a freshman using my high school transcripts, but they informed me that, no, since I had attended university, only those transcripts can be used (needed to verify the 2.0 GPA needed to get into the school). It will take me some time to pay off the 13k to have my transcripts released...I know that I could eventually pay off the 13k, but I don't want to wait until I'm 23 or 24 to go back to school.

Although justbroke usually posts excellent advice here, I am going to disagree with the idea that you should scrimp and struggle to pay off the $13k debt to the university while living on such meager wages.

When a person is earning a decent living, a debt of $13k, or even $50k may be manageable, and that person might actually stand to lose more by filing for Chapter 7 than they would by simply paying back the debt. You are not in that situation. Your income is so low, and your necessary expenses gobble up so much of what you do earn that it seems silly to sink $13k into paying off this debt when Chapter 7 bankruptcy would allow you to dump the debt and use your income to pay for living expenses going forward. Also, assuming that you choose to ignore the $13k debt, it is highly likely that at some point you will be sued for it, and have your wages garnished and bank accounts levied.

If you decide to file for Chapter 7 bankruptcy, the unpaid tuition and fees are NOT considered a student loan, and you WILL be able to discharge the $13k debt. That won't help with your 3 student loans, but it will eliminate the possibility of ever being bothered by the university or its collection agency ever again. It will also force them to release your transcripts.

Regardless of whether or not you pay off the debt, ignore it, or file for bankruptcy protection, you should be able to enroll in a community college without needing to provide transcripts from this university. After all, unless you tell them on the application that you went to school there, the community college should have no way of knowing that, and should accept your high school transcript just as if you had never gone anywhere else.

Back when I was 18 years old, I attended a university for one school year, and did so badly that I had no desire to transfer the grades. There was no money owed, however it made no sense to transfer poor grades. Several years later, I applied to the local community college, lied on the application about having ever gone to another college or university, and was accepted without any problem based solely on my high school transcript. I graduated with an associate's in applied science, and was able to find employment without any problem. Several years later, and now living in another state, I decided to go back to school and complete a bachelor's degree. I again lied on the application, listing only the community college and high school, and was accepted without any problem, and graduated without any problem.

This is really no different from filling out a job application. Contrary to popular belief, prospective employers generally CANNOT find out about jobs which you DON'T list on the application or resume. Therefore, it makes no sense to put any jobs in which you were fired or dismissed, and instead one should lie on the application and "paper over" the time spent working at such jobs.

[justbroke]

bcohen, I wouldn't disagree if that $13K in college debt is "not considered an educational loan" or not an "education benefit, scholarship, or stipend" under the new provisions in the BAPCPA of 2005. The question will always remain, is that dischargeable.

Again, if that $13K is considered an obligation to repay funds received as an educational benefit, scholarship, or stipend or is any type of educational loan -- remember there is no longer a "Federal" loan versus a "private" student loan for purposes of dischargeability -- then it would be non-dischargeable and the bankruptcy would literally do nothing to help.

I suppose I should have written that this will be fact specific. The OP will need to review what they may have signed with the university/college. (Was it a promissory note?) This means that I would (personally) proceed with caution and have an attorney review that $13K debt.

[bcohen]

I read the post very thoroughly, but I re-read it, and I still believe that the $13k is for unpaid tuition and fees from the second semester, and the reason that the tuition and fees were never paid is because the application for a (most likely private) student loan was denied. If that is correct, then the debt owed to the university is not a student loan, scholarship, or stipend, and hence subject to discharge.

[justbroke]

That's what I read as well, but don't know if the student has a master promissory note on file that causes the tuition, fees, books, and other expenses to fall back to a loan from the school. I just don't know enough. Of course if the student can prove that there is no "loan" (no promissory note) then this would just be ordinary (unsecured) debt and dischargeable.

I just didn't want them to get too excited. They would be very lucky if they never signed anything creating a loan.

[LadyInTheRed]

Way back in the dark ages when I went to college, the school required me to sign a loan document in case the my student loans didn't come through. So, I agree with justbroke that a close review of documents is needed.

[bcohen]

Let us suppose for the sake of argument that the university did bury some kind of promissory note/agreement to pay in the materials which a student must sign (perhaps electronically by clicking a button) when they register for classes. How enforceable is such an agreement in the context of bankruptcy, and how likely is it that the school would attempt to push the issue? A student loan is a contract to repay an amount of principal together with interest over a prolonged period of time. It would seem that an "agreement" that a student is financially responsible to the university to pay for any charges incurred--which have subsequently gone to collections--is NOT the same thing.

[LadyInTheRed]

Here is the language from the bankruptcy code describing the student loan exception to discharge:

(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for—(A)(i)an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or
(ii)an obligation to repay funds received as an educational benefit, scholarship, or stipend; or
(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual

https://www.law.cornell.edu/uscode/text/11/523

The law says nothing about paying interest and principal over a prolonged period of time. If there is a loan agreement, then the question is whether it is a qualified education loan as defined in the internal revenue code which would most likely be the case unless the school is a real flaky school. If it is a qualified education loan, then the assumption should be it is excepted from discharged absent a court order to the contrary after a showing that non discharging it is an undue hardship.

If there is no agreement that constitutes a loan, the school could argue that the unpaid tuition is "an obligation to repay funds received as an educational benefit". There is a 9th circuit appellate court decision saying that without a loan agreement, that argument won't work because if no "funds" actually change hands between the student and the school. But, courts in other circuits do not have to follow that ruling. A school very well may push the issue to try to establish a different precedent in the district or circuit. A ruling favorable to the school could go a lot further than this one $13K debt.

I really don't think it is a long shot to think that as part of registering to attend the school that the OP signed something to agree to pay the tuition that is a loan agreement.
If the OP is going to file BK only to discharge this debt so that he can receive transcripts required to attend a new school, I would think he would want to make sure that the debt is dischargeable and find out whether he will need to file a petition to determine it is dischargeable. If he just files bankruptcy without filing a petition to determine dischargeability, then he risks the school taking the position that the loan was not included in the discharge and still being unable to get the transcripts without suing the school. None of us knows whether the debt is dischargeable or what the school will do, but all the school has to do to make the discharge worthless without a fight in court is to say "This is a non dischargeable debt and you still can't have your transcripts."

At a minimum, before filing BK to discharge this one debt, the OP needs to review the paperwork he signed with the university to see if he signed a loan agreement. If there is no loan agreement then he should do some research in his district to see if the local judges have ruled on the issue of weather unpaid tuition is an educational debt that is excluded from discharge or consult with an attorney.

I also think he should think very hard about using this "bazooka". He doesn't say that he can't pay the debt, only that it will take a long time and delay continuing his education because he can't get his transcripts. I suspect that if he really wants to go to school, he can, either by not telling the school about his prior college attendance as bcohen suggests or by taking and passing remedial courses.