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With student loans in Texas bankruptcy, devil is in the details

It's college graduation time. A lot of newly sheepskinned individuals are about to hit the bricks looking for that first work opportunity that will launch them into a long and prosperous career. Many of them, however, may find that their first voyage into self sufficiency is slowed by a sea anchor of student loan debt.

According to The Project on Student Debt -- an initiative of the non-profit Institute for College Access & Success -- 71 percent of college seniors graduated with student loan debt in 2012. In Texas, the percentage was 56 percent and the average debt load was just over $24,000.  

That kind of financial pressure so early in a person's life can represent a significant challenge. Finding debt relief can wind up being a daunting task in the face of all the other demands of everyday life. Is seeking the protection of bankruptcy appropriate? 

It's important to be aware that student loan debt is not viewed the same as other unsecured debt such as credit card balances. This is a fact that is sometimes misunderstood. What can happen then is that a person may go through bankruptcy, believe all debts have been expunged and find out later that they are still on the hook for their student loan balances. The devil is in the details and it's important to get them right.

This was the general tone of advice offered to a woman recently by Bankrate.com's Bankruptcy Adviser columnist. The woman said that her ex-husband had erased a student loan for their daughter through bankruptcy and she wanted to know if lenders could go after her daughter for the money.

The adviser suggested getting answers two questions. Is the daughter a co-signer on the loan? If she is, she is liable for the debt regardless of the bankruptcy.

The other question is perhaps more critical. Did dad actually unload the loan liability in bankruptcy, or does he simply think he did? Erasing student loan obligations usually requires special filings and can only be pursued by those who meet specific criteria. If all the standards aren't met, the burden can remain.

That's why it's so important to seek counsel from professionals with experience. 

Source: Institute for College Access & Success, "State by State Data," December, 2013
Source: Fox Business, "Does Dad's Bankruptcy Erase Student Loan Debt?" Justin Harelik, Bankrate.com, April 30, 2014

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