More and more, we’re hearing about a student loan crisis brewing, and that debtors are having difficulty resolving their student loans in bankruptcy, in Las Vegas as much as anywhere else. Most of the time, the media portrays it as an issue affecting younger people, but there are many older student debtors, and more commonly, many of the younger debtors’ parents are also involved. One way they help is by taking out 401(k) loans, which bring their own problems, but the other frequent way parents get involved in the student loan problem is by co-signing them. Here are a few things to know:
· Lenders are becoming more willing to scrutinize would-be debtor’s applications. They are tightening underwriting standards—not to the point of lending based on majors, but they will require parents to co-sign the loan to ensure it’s repaid.
· Co-signing a loan will affect your ability to borrow money in the future, even if you never pay on the loan because creditors assume the worst case scenario in terms of your debt-to-income ratio.
· It is possible for co-signers of a student loan to be released from their payment obligations. Lenders sometimes require several years of timely payments before the loan agreement will allow them to be released, but it’s better than permanently living in fear that the original borrower will lose a job or default.
· Otherwise, co-signers’ rights are no different than those of the debtor’s. In other words, if the debtor can’t or won’t pay and you’ve co-signed the loan, you will have the same bankruptcy rights as the debtor. That means you will have to prove that repaying the loan is an “undue hardship” for you. This is often difficult to accomplish.
· The penalties of the debtor failing to pay on the loan will fall to the co-signer, including all the assessed (and usually arbitrary) late fees.
· If you co-sign a child’s loan and your child dies, you’re rights depend on the loan. If it’s a loan from the federal government, then you might be able to have it discharged or canceled. With a private student loan, though, you’re right back at the “undue hardship” exception.
Co-signing a student loan can lead to serious adverse consequences, so if you’ve signed one and you need help, consulting with an experienced Las Vegas bankruptcy attorney can help you learn your options.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-880-5554 to set up your free consultation.