If you retain one piece of information from reading this site, let it be this one: never co-sign anyone’s student loans. Not your spouse’s student loans. Not your best friend’s student loans. Not your nephew’s student loans. Not even your own child’s student loans. It is the worst possible kind of debt to assume on behalf of someone else. The balances can be huge, the debt can’t be discharged in bankruptcy, and there’s nothing to repossess. That’s what anonymous parents M and D have learned, the very hard way.
Ever heard of a cramdown? It’s when a bankrupcty court splits a home loan into two parts: a secured loan that’s equal to the current value of the home, and an unsecured loan that covers the rest of the outstanding debt. The secured loan is paid, and the unsecured isn’t. It can result in lower monthly payments (if the new loan amount is amortized over the course of the loan), but the important part is that it helps guarantee that a significant part of the loan will still be paid off.
It’s expensive to go broke! “A Chapter 13 costs $3,000. Your lawyer will probably want part of that up front, with the rest paid off as part of the plan. A Chapter 7 goes for about $1,200.” Yikes. If you’re considering bankruptcy and looking for a little guidance, this article from the St. Louis Post-Dispatch is a good place to start. [Post-Dispatch]