Q: I didn’t pay my student loans. My $20,000 in student loans is now up to $90,000. I am on unemployment. What is going to happen?
A: This is a tough situation for people. You go to school and borrow money with the expectation that you will be able to pay it back when you get a job. And when the economy goes south, many people lose the ability to pay their student loans. So, what do you do?
Unlike credit cards or personal loans, student loans generally are not dischargable in bankruptcy. That means you cannot get rid of the debt solely by filing for bankruptcy and moving on with life. You are going to have to pay them back.
Your first shot should be a deferment. If you are not working, most student loans can be deferred for six months until you get a job. Contact the lender and ask for the hardship forms.
If you do not qualify for a deferment, then you need to start talking settlement. You may have an inheritance or 401(k) that you can use to get a lump sum and pay off the loans. Raiding your retirement to pay off a debt is not the best idea, but it is better than ignoring the problem.
A payment plan can also be set up. You need to talk to the lender and set up a reasonable payment plan. Generally, you have to sign an agreement to get this done. The agreement should be reviewed by an attorney. However, if they ask you to sign a stipulated judgment, be very wary and make sure an attorney reviews it carefully.
If you have tried all of that, they will probably sue you. If they get a judgment, they can put a lien on your real property. This means they could, at least in theory, sell your home. They could also levy your bank account or garnish your wages. If you are behind on your student loans and you live in Sacramento County, you can check the court’s website to see if a lawsuit has been filed.
The answers in this column do not represent legal advice and do not enter you into an attorney client relationship with the individual answering the questions. If you have a legal issue it is recommended that you contact an attorney.
About the author: Jonathan Stein is an attorney based out of Elk Grove with over 11 years in his own practice. For more information visit jonathanstein.com