Will declaring myself bankrupt cancel my student debt?

Factual Questions
1

Both my girlfriend and I have just left university with combined debts of over £15,000.

However, according to this article in the Guardian newspaper, UK students can have their student debts cancelled out by declaring themselves bankrupt.

According to the columnist …

Sounds like it’s too good to be true!!

Anyone able to enlighten me further?

I can think of a few things I’d rather spend £15,000 on, and I’m going to pay that much in higher taxes 'cos of my degree anyway (at least, that’s the plan :)).

– e-logic

2

i’m in the same position, although i’m in a gap year at the moment. i estimate that when i graduate i will have debts of around £15000 for myself.

i suppose it must have some truth if its published?

3

Wow. Lucky you. In the US your student loans are irrevocable. You either pay them, or they follow you for the rest of your life.
It seems odd that the UK would allow you to cancel your student debt, but the US wouldn’t. Then again, stranger things have happenned.

4

IANAL, but in the US declaring bankruptcy is not something one would take lightly. Beside disqualifying you for any job that involved dealing with money, it would be very difficult for you to get a credit card or to puchase a car or house on credit. I think it takes 7 years for a bankruptcy to be removed from you credit history… which is a long time not to be able to build any credit up.

Something sounds fishy though, if there was no penalty for doing this why would anyone pay off their student loans in the UK?

5

Obviously, if by some miracle you have any assets, you won’t want to declare yourself bankrupt because they, too, will disappear along with your debt.

6

Speaking from the US, it’s my understanding that when students don’t pay back their loans, that leaves less money available for future deserving students.

Take the moral high road here and pay back your debt. Consider it your gift to the next student that didn’t have the money for university…just like you.

7

Ummm, if you have your degree then I think that the 15,000 pounds has already been spent.

8

I heard a government spokesperson say that this loophole was being closed “soon”, so it sounds like, yes, it exists right now. She pointed out, however, that having been declared bankrupt will seriously affect your credit rating (think credit card, mortgage etc) in the future, so it’s not a panacea.

9

Oddly enough, the reverse is true. If you have a lot of debt over your head, credit card companies see you as less likely to make timely payments on your credit cards. When you declare bankruptcy, you no longer have that debt load, so you become more attractive to credit card companies. You would be amazed at how many offers of credit you will get, immediately after declaring bankruptcy. Of course, it is the higher rate cards, but your mailbox will be stuffed with “pre-selected” offers for cards.

10

hi there, e-logic. I wish I knew which country you are in, although mention of “Guardian” might suggest U.K. at least, and a location of “silicon fen” has a sort of Cambrdge-y sound to it. Am I at all close?

Anyway - what I will say is that years ago I became bankrupt. That was under Scottish law, not English (and one that has changed by now) so I cannot speak in any but the most general terms.

Do not take that decision lightly. It could (I was told anyway) make it well-nigh impossible to obtain a mortgage (hahah – no money for one anyway :frowning: ) or indeed any credit.

Heavens it could make it difficult to get a new bank account, for goodness sake.

Oh, AND it will mean saying goodbye to nice toys like your computer. As I recall, for some reason a television set is considered a basiic enough thing to keep, classed along with necessary kitchen and bedding stuff and similar furniture. So, I cannot see why a telly would be OK to keep, but I am pretty damn sure you will, when you declare what your assets are, you’ll find that your computer may have to be given up.

(N.B. “Assets” sounds awfully grand, as though it meant big money: hmm - regard it as meaning merely “possessions” instead.)

As for credit becoming easier, welll, yes it might for all I know IF you you later become more profitable. I really would not recommend using the idea of easier credit later as grounds for that sort of decision now.

My own tuppence worth, then, is regard it as a choice based more on desperation than on preference. (Anyway - surely repayments of student loan are related to amount of income?)

Find a Citizens’ Advice Bureaux or a money advice centre ( or similar things if you are not in the U.K.)

I suppose I am not making you very cheerful, but, well, I never did practise being a little ray of sunshine. :slight_smile: I really do hope you can work something out though.

11

YUK! What a mess - sorry folks. I can spell, honestly! Most of the time. :frowning:

12

I know this is GQ and we should restrict ourselves to the OP’s question of “can I” rather than “should I”, but this is a case with a clear ethical path. You took out the loan in good faith. Whether or not you can dodge it, you should determine if you should. I won’t try to answer that question for you since only you can know how honorable a person you want to be, but you should take into consideration the effect this will have on yourself, not just legal consequences and public perception of your actions, but your own sense of honor. If that seems like a quaint concept, then the issue is already settled for you.

13

I went to school with an older woman who had declared bankruptcy many years before so she didn’t have to pay back her OSAP (Ontario student loans) from her previous attempt at college. And there she was, with a fresh Ontario loan, which not only covered her tuition, but her rent, and food for her and her kid.

While I couldn’t get OSAP because my parents (who didn’t financially support me) made too much money. What a system.

14

Oh, ps, I meant to include, since this is GD, that while it did cancel out her student debt, she was told that she would not be able to get a mortage within the near future, not that she cared.

15

Bankruptcy will stick on your account for 6 years. You can rebuilt your credit rating before the 6 years is up but a lot of companies (including mine) will not approve you for our products with a bankruptcy on file.

I find student loans are very cheap interest wise. I just pay the minimal which is very reasonable (although it’ll take me something like 7 years at my current rate).

16

Thanks for all the replies.

It’s interesting to get a US perspective on things. The idea of paying vast amounts for a university education is still seen as unjust by a lot of people here in the UK, as it’s not been the system in the past, but I guess to a lot of Americans (in particular) £15,000 must seem a small price to pay for univeristy qualifications…

I kinda thought that filing for bankruptcy was a pretty major step and not to be taken lightly, so I’m glad to have that confirmed. It’s not something we need at the moment to do out of necessity: although £15,000 is a lot - most of it belongs to my g/friend - it’s interest free (in real terms) and the repayment amounts aren’t excessive.

However, being human and in my 20s, £15,000 certainly feels like a lot of money (although I guess compared to a mortgage it’s not so much) and the idea of slipping out of debt so easily does have a certain appeal, even if the ethics are shaky :wink:

I guess the conclusion (in GQ terms) is that I could indeed cancel my student debt by filing for bankruptcy, but that the costs involved mean that the potential risks perhaps outweigh the benefits.

And in ethical terms, I agree that since we’ve taken the cash we have also taken on the responsibilty to honour the debt. Perhaps we ought to look on it as an investement in the future, and hopefully the £15,000 spent between us on university will pay dividends in later life.

Thanks to Celyn in particular for your info, and you were spot on with the Cambridge guess :slight_smile:

17

How easy would it really be to just “declare bankruptcy”, either in the UK or the US? Presumably, you’d have to get a judge to declare you bankrupt, and wouldn’t they look at your ability to repay before doing so?

18

Thank you for recognizing this, on behalf of all of us who have paid the student debt we agreed to take on and did not welsh out of it.

19

To further the USA hijack note a bit, a “Chapter 7” personal-type bankruptcy sticks for ten years; all the nasty debts written off by said bankruptcy are what are wiped after seven. So there’s a three-year period where one still has a bankruptcy on the credit report but no indication as to what was wiped off.

AFAIK, having had a bankruptcy doesn’t preclude one from a “job that involved dealing with money” the way a felony conviction for embezzlement would. Some employers want to pull the credit report as a condition of hire nowadays, which I find odd.

AmbushBug

20

I’m not quite as familiar with the UK system of higher education, but isn’t that covered by the taxes in your country? I was always under the impression that in most other countries with a socialist-type government that the high taxes took care of such things as higher education so that students wouldn’t have to go through the hassle of getting loans, like they do in the US. What’s the scoop in the UK? When was the system changed, and why did that happen? Did students protest the changes at all?

Please illuminate a curious person… :slight_smile: