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So, I have a friend in college who is looking for alternatives to a bankruptcy.  He has no assets, significant credit card debt (currently all at 0% apr, but soon to increase to some large apr), and lots of student loan debt.  He wants to go to graduate school so is concerned that having a bankruptcy could impact his ability to get funding for school in the future.  He is not irresponsible in general, but had a few financial surprises this semester such as being ineligible for student loans without a cosigner (and grew up in foster care unadopted so has no cosigner), and all of the sudden, offers for great 0% apr loans and various 0% apr lines of credit stopped rolling in.  This was because he quit his job to go to school so his income decreased and his debt to income ratio suffered.  He's tried and tried to get a loan or new credit card to cover the debt, but it looks like he's out of luck with a 0% deal floating thousands of dollars expiring in a few weeks.  Best advice I can think of is to call the credit card with the expiring 0% and ask for an extension or to decrease the interest rate once it goes up, and to look for a job asap.  What else might he do?  His semester just ended, so he can now return to work full time.

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1. Get whatever job can get. Any job. Put school on hold.
2. Pay off debt.

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Here's his choices, listed roughly in order of most to least moral in my estimation.

Work and pay it off.
Default without filing BK. Negotiate partial payments or failing that- tell creditors to pound sand.
File Bk.

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Also, under no circumstances should any school loan debt be used to pay down regular debt, unless he ultimately wants to pay it all in full. School loans follow you to the grave.

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TravelerMSY said:   Here's his choices, listed roughly in order of most to least moral in my estimation.

Work and pay it off.
Default without filing BK. Negotiate partial payments or failing that- tell creditors to pound sand.
File Bk.

  
Yeah, I was wondering what would happen if he just stopped paying rather than file bankruptcy?  This is Massachusetts, so I would think he just tried to disappear and paid nothing, he would either: be free in 7 years of most or all debt, or facing a prison sentence if sued by the credit card companies, but I really don't know for a fact what would happen.  On the other hand, the quote seems to be saying to contact the creditors after 90ish days of not paying and insist upon settling for a smaller amount in exchange for payment.  Has anyone ever tried this?  How does that usually work out?

Obviously, what is best is probably to call the credit card companies, work something out, and start paying back asap, even if it takes 2 full time jobs and then some.

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Gauss44 said:   Obviously, what is best is probably to call the credit card companies, work something out, and start paying back asap, even if it takes 2 full time jobs and then some.
A former colleague got into a CC debt situation he couldn't repay in full. While he was current on his CC bills, he tried his best to work a repayment plan, but the banks didn't offer any meaningful assistance.  After he stopped paying his CC bills (and let that go on for several months), they then became wide open to negotiating repayment options.

He was ultimately able to negotiate a repayment of something insanely low like 20¢ on the dollar (i.e. 20% of the debt, where the alternative was a BK filing, in which the banks could have ended up with nothing). He may have agreed to repay that 20% back in one lump sump though. I also suspect that the 20% he negotiated was after significant compounded interest had piled up on the debt (along with other penalties/fees), so it was likely considerably higher than 20¢ per dollar of the original debt.

Obviously the situation killed his credit score (probably for at least 2-3 years, whereas BK can be problematic for 7+ years).
 

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TheDiggler said:   
Gauss44 said:   Obviously, what is best is probably to call the credit card companies, work something out, and start paying back asap, even if it takes 2 full time jobs and then some.
A former colleague got into a CC debt situation he couldn't repay in full. While he was current on his CC bills, he tried his best to work a repayment plan, but the banks didn't offer any meaningful assistance.  After he stopped paying his CC bills (and let that go on for several months), they then became wide open to negotiating repayment options.

He was ultimately able to negotiate a repayment of something insanely low like 20¢ on the dollar (i.e. 20% of the debt, where the alternative was a BK filing, in which the banks could have ended up with nothing). He may have agreed to repay that 20% back in one lump sump though. I also suspect that the 20% he negotiated was after significant compounded interest had piled up on the debt (along with other penalties/fees), so it was likely considerably higher than 20¢ per dollar of the original debt.

Obviously the situation killed his credit score (probably for at least 2-3 years, whereas BK can be problematic for 7+ years).

  
Yeah, the compounding interest part sounds like it could kill just about any deal.  Not sure if this is possible, but say $1000 blows up into $50,000 and the bank allows a repayment of 20%, then you end up paying $10,000.  I guess I'm curious about what the original debt was before compounding and missed payments started, and what was actually paid after the banks started negotiating.

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Gauss44 said:   I guess I'm curious about what the original debt was before compounding and missed payments started, and what was actually paid after the banks started negotiating.
I never got those details. I don't even know if the original debt was 0%. My gut feeling is it was revolving debt, which if so, he was already paying compounded CC interest on it. Under those circumstances, a 20% payoff is a huge win for him.

In your friend's case, as soon as the 0% ends, if he stops paying his CC bill, not too much compounded interest should accrue, even if he skips 6 months worth of payments.  The bank may not be willing to go down to 20% (especially if he can't do a lump sum payoff), but if they fear that BK is the alternative, they may be willing to take a huge haircut on the outstanding debt (while setting up a workable payment plan).
 

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Please note that student loans are not normally discharged in bankruptcy, which means that the bankruptcy wouldn't get rid of the student loan debt, and also means that the people holding the debt will not negotiate at all. Also, as a rule you can't declare bankruptcy due to only credit card debt.


ETA: you will never be sent to jail because of debt unless it can be shown that you committed fraud ( like falsely claiming a high income in order to get a high credit limit). Credit card debt will eventually age off of your credit report but the student loan will remain.  

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soundtechie said:   Also, as a rule you can't declare bankruptcy due to only credit card debt.
 

  I never heard of this and knew someone who went bankrupt just based on CC debt.  It wasn't all that much debt either - he would probably have been better served by just ignoring it and eventually settling, but that approach works best if you have very little in the way of assets for a creditor to take for your nonpayment.

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Send him to creditboards, might be able to get some help.
Alot of good info over there.

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I think you should put your school on hold or do a night job to pay off the debt and in morning go for school if possible.

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TheDiggler said:   
Gauss44 said:   Obviously, what is best is probably to call the credit card companies, work something out, and start paying back asap, even if it takes 2 full time jobs and then some.
A former colleague got into a CC debt situation he couldn't repay in full. While he was current on his CC bills, he tried his best to work a repayment plan, but the banks didn't offer any meaningful assistance.  After he stopped paying his CC bills (and let that go on for several months), they then became wide open to negotiating repayment options.

He was ultimately able to negotiate a repayment of something insanely low like 20¢ on the dollar (i.e. 20% of the debt, where the alternative was a BK filing, in which the banks could have ended up with nothing). He may have agreed to repay that 20% back in one lump sump though. I also suspect that the 20% he negotiated was after significant compounded interest had piled up on the debt (along with other penalties/fees), so it was likely considerably higher than 20¢ per dollar of the original debt.

Obviously the situation killed his credit score (probably for at least 2-3 years, whereas BK can be problematic for 7+ years).

  I had the exact opposite experience.  I had a complete financial collapse brought on by an ex-wife roughly 5 years ago.  I couldn't do BK because of the laws in my state.  I was basically forced to try this method due to a lack of alternatives.   I waited roughly 6 months with no payments, saving what I would have paid each month.   I also liquidated all the assets I could, so I had a pretty large chunk of cash to work with at that point.  I had roughly a dozen accounts with balances and I contact each one and offered to settle.  I tried nice guy, hard-ball, reasoning, begging, every tactic I could.   I called multiple times and talked to many different agents, including escalating up the chains.  Exactly ZERO were willing to budge on the balances.   I offered as much as 90% with instant payoff in full and was told every time they'd rather go to court and get the full amount.   I waited a month to show them I was serous and tried again with the same results.  After getting advice similar to the above from many different sources, I was pretty shocked at the time.   In the end, in almost ever case the best I could negotiate was payment of the balance in full, elimination or extreme reduction in interest rates (most gladly went to 0%), and removal of all late fees and penalties.  Also surprising was the no one was remotely willing to entertain removing credit dings.   That seemed like a free no-brainer on their part, but every single creditor held tight to the party line of "We cannot remove accurate information under any circumstances."  We all know that's not entirely true, but they clung to it.   In the end, I saved a ton in fees in interest, but not one single creditor reduced the principal.   For what it's worth, prior to the meltdown I had perfect credit with years of good payments and I have a pretty high income.  Those may have been factors?   After the fact, I found plenty of people online who had similar experiences, so YYMV when it comes to negotiating.  I certainly didn't find any of the mythical 20% offers the poster is talking about.
 

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drodge said:   I had the exact opposite experience. ... I couldn't do BK because of the laws in my state. ... was told every time they'd rather go to court and get the full amount. ... I have a pretty high income.
If the laws in your state prevented you from a BK filing, if the banks figured that they stood a good chance to WIN IN FULL (probably plus collection fees) in court, and if you have "high income" (giving them more hope that they'd eventually collect on their winnings), then unfortunately you were boned.  In short, you had no leverage over the banks.

Doesn't sound like OP's friend is in a similar situation financially, and OP has already mentioned that the friend could file BK (although w/ adverse consequences about getting loans  for future education).


  

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How much does he owe exactly?

What are his specific college plans?

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Gauss44 said:   
 
Yeah, I was wondering what would happen if he just stopped paying rather than file bankruptcy?  This is Massachusetts, so I would think he just tried to disappear and paid nothing, he would either: be free in 7 years of most or all debt, or facing a prison sentence if sued by the credit card companies, but I really don't know for a fact what would happen. 


  
You don't go to prison for failing to pay debts.

 

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TheDiggler said:   
drodge said:   I had the exact opposite experience. ... I couldn't do BK because of the laws in my state. ... was told every time they'd rather go to court and get the full amount. ... I have a pretty high income.
If the laws in your state prevented you from a BK filing, if the banks figured that they stood a good chance to WIN IN FULL (probably plus collection fees) in court, and if you have "high income" (giving them more hope that they'd eventually collect on their winnings), then unfortunately you were boned.  In short, you had no leverage over the banks.

Doesn't sound like OP's friend is in a similar situation financially, and OP has already mentioned that the friend could file BK (although w/ adverse consequences about getting loans  for future education).


  

I was merely responding to what was posted about settling for 20 cents on the dollar.  I saw that same info posted everywhere when I was looking for information for my situation.   It's definitely not that easy in a lot of cases, and I saw tons of people who's experience were closer to mine.   Like most people, I assumed BK was also always an option.  That wasn't the case either. 
 

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xerty said:   
soundtechie said:   Also, as a rule you can't declare bankruptcy due to only credit card debt.
  I never heard of this and knew someone who went bankrupt just based on CC debt.  It wasn't all that much debt either - he would probably have been better served by just ignoring it and eventually settling, but that approach works best if you have very little in the way of assets for a creditor to take for your nonpayment.

  
If you let it age off, would you still be able to have a checking account elsewhere, or would you be in danger of having any and all accounts frozen?

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althes said:   Send him to creditboards, might be able to get some help.
Alot of good info over there.

  Thanks, I will suggest that.

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jerosen said:   How much does he owe exactly?

What are his specific college plans?

Debt:  est. $50k in private non-federal student loans, $50k in federal student loans, $30k in credit card debt (currently all at 0% apr, but part of it est $6k may end up with a high compounding interest rate in a few weeks...)  
He wants to go to medical school to get an MD.  I think he might be able to solve this by getting a job asap.  But if he can't solve this that way and ends up with an out-of-control interest rate, then a plan will be needed.

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Gauss44 said:   
jerosen said:   How much does he owe exactly?

What are his specific college plans?

Debt:  est. $50k in private non-federal student loans, $50k in federal student loans, $30k in credit card debt (currently all at 0% apr, but part of it est $6k may end up with a high compounding interest rate in a few weeks...)  
He wants to go to medical school to get an MD.  I think he might be able to solve this by getting a job asap.  But if he can't solve this that way and ends up with an out-of-control interest rate, then a plan will be needed.

  He has $100k in student loans, does he have a degree? what in?

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$50k in private undergrad loans and $30k in credit card debt is not a good place to be at the start of medical school.

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Your friend should stop being a professional student, enter the workforce like an adult, and learn to take some personal responsibility. Not sure why he racked up $100k in student loans and $30k in credit card debt, but he needs to get to work to start paying it off and get on some sort of income based repayment plan for the student loans.

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Do NOT file BK.

Repeat.

Do NOT file BK.


If he can't pay the bills...just don't pay them. Simple.

They may sue years down the road....and at that point if you have judgments and wages being garnished....maybe he's forced into BK....but he's a long way from that.

And BK does nothing for the student loans anyway.

Get a job. Stop borrowing anymore money. Grow up.

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I dunno. BK now comes with income based repayment. He might have a chance at a low payment or a total discharge. Fat chance later

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TravelerMSY said:   I dunno. BK now comes with income based repayment. He might have a chance at a low payment or a total discharge. Fat chance later
  BK attorney here. I think you're referring to chapter 13 payment plans, which allow you to pay off a portion of the debt over 60 months, and have the rest discharged at the end of the repayment period.

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Yeah. I'm assuming he would ultimately pay less of the debt filing now as a broke student vs. later when he's employed in a regular job.

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TravelerMSY said:   Yeah. I'm assuming he would ultimately pay less of the debt filing now as a broke student vs. later when he's employed in a regular job.
  

Assuming he doesn't have to pay $500 a month for the next 60 months...

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$30k in credit card debt at 0% means he spent $30k in 18-24 months because that's about how long those promotions last.  What in the ____ was he spending on?  Anyway, your "friend" needs to get a job.  I know it's been said many times, but it's worth repeating.  

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Gee, FW is really slipping these days, not one Pay your bills Deadbeat answer posted yet. That's an alternative to bankruptcy.

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taxmantoo said:   
TravelerMSY said:   Yeah. I'm assuming he would ultimately pay less of the debt filing now as a broke student vs. later when he's employed in a regular job.
  

Assuming he doesn't have to pay $500 a month for the next 60 months...

  Yeah. I posted that without knowing the amount.

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RailroadTrack said:   $30k in credit card debt at 0% means he spent $30k in 18-24 months because that's about how long those promotions last.  What in the ____ was he spending on?  Anyway, your "friend" needs to get a job.  I know it's been said many times, but it's worth repeating.  


He may have been rolling 0% promotions one after the other over years while simultaneously accumulating debt.

Plus there is mention of surprise intelligibility for a student loan and some cc debt might have been to supplement schooling.

But then I am giving the friend the benefit of the doubt.

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OP, I'll share my story as I and the wife were in a very similar situation. Now we are financially wiser and she has a MD.
Short story is that we were stupid in college, racked lots of CC debt and student loans. Both of us defaulted on SL debt and we both went on a debt settlement repayment program. We worked with our student loan providers and were able to do low payments during our hardship period. After the CC debt was paid off (3ish years) The wife got accepted into medical school...and I worked my ass off to support her in this endeavor. 4 years later residency across the country, and again I worked my ass off to support her in this ongoing journey. During this time we did not backslide and did not get into stupid old habits, cash money only; and yes we did buy(cash) and drive several(4) crown-vics. Love them cars. Now the wife is a full fledged doc with a high salary to match, doc loan on the home so zero down on that jumbo and no PMI. No stupid CC debt, only Student loans, and a mortgage.
I get to stay home and raise our 3 kiddos, while doc momma brings home the bacon.

So to be blunt. The situation is not hopeless, but it will take a few years to get back on track. During this time it may be wise to study for the mcat if your buddy wants to get into a good medical school. Study, work, and no Credit Cards. If he can do this now, then this will be a great indicator that he is able to do this through medical school and residency. (no free time there either sorry) So it's up to him, man up and do the needy.

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shyboi said:   OP, I'll share my story as I and the wife were in a very similar situation. Now we are financially wiser and she has a MD.
Short story is that we were stupid in college, racked lots of CC debt and student loans. Both of us defaulted on SL debt and we both went on a debt settlement repayment program. We worked with our student loan providers and were able to do low payments during our hardship period. After the CC debt was paid off (3ish years) The wife got accepted into medical school...and I worked my ass off to support her in this endeavor. 4 years later residency across the country, and again I worked my ass off to support her in this ongoing journey. During this time we did not backslide and did not get into stupid old habits, cash money only; and yes we did buy(cash) and drive several(4) crown-vics. Love them cars. Now the wife is a full fledged doc with a high salary to match, doc loan on the home so zero down on that jumbo and no PMI. No stupid CC debt, only Student loans, and a mortgage.
I get to stay home and raise our 3 kiddos, while doc momma brings home the bacon.

So to be blunt. The situation is not hopeless, but it will take a few years to get back on track. During this time it may be wise to study for the mcat if your buddy wants to get into a good medical school. Study, work, and no Credit Cards. If he can do this now, then this will be a great indicator that he is able to do this through medical school and residency. (no free time there either sorry) So it's up to him, man up and do the needy.

  

It sounds like your message is less like "man up" and more like "Find a spouse who will work to put you through medical school. "

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Perhaps, but we both got ourselves into the mess and we worked our way out of it--team effort. We both f*cked up and we dealt with it. Wife worked her ass of in medical school, residency (studying is a hard job too) and moonlighting when appropriate, I worked my ass off paying for a (small) part of it. One person can do this too--yes life will be on hold for 10 years while it gets done, but in the end life will be better for it. Moral of the story is it's easy to rack-up an enormous debt and hard (but doable) to work it off.

Also I miss being a sound engineer that was one of my favorite jobs.

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TravelerMSY said:   Here's his choices, listed roughly in order of most to least moral in my estimation.

Work and pay it off.
Default without filing BK. Negotiate partial payments or failing that- tell creditors to pound sand.
File Bk.

Morality has nothing to do with it.  It's a business decision, just like it would be for the bank that loaned the money or, for that matter, our President.  If defaulting on a contract is more advantageous than adhering to it, then default.  Plain and simple.  

OP: Tell your friend to implement course of action #2, and to do it before he sends any more money into the bottomless black hole that is his debt.

Don't get moralistic over it.  It's a business decision.  It must be OK after all:  if you can default on contracts left and right and declare bankruptcy over and over again and STILL get elected President with widespread conservative, family-values and evangelical support, then how could it be wrong?

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Run for president?

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