Friday, November 25, 2011

Understanding Loopholes (The College Tuition Bankruptcy Edition)

There are always lawyers smarter than the laws. That's why laws should be limited to protecting private property and not harming anyone else. Lawyers will find there way around everything else.

For example, government is so intertwined with the financing of college education that they have made it impossible to discharge student debt in bankruptcy. Or so the government thinks, a bankruptcy lawyer explained to me how the savvy are getting around this law. The savvy will develop good credit for a couple of years so that they get significant access to personal credit-card type credit, the they will use this credit access to pay off the student loans. Once all the loans are transferred to the credit cards and bingo, the person files for bankruptcy and all the student loan debt is, for all practical reasons dismissed.

Although once word gets out on this loophole, it is an example of how top flight corporate lawyers will run circle around any congressional legislation. This creates a moat around the corporate few who can get around any law and the rest of us that are hampered by ever increasing laws and legislation.


  1. FYI. Congress in 2005 passed the Bankruptcy Abuse Prevention and Consumer Protection Act. This was to make it harder for people to get a Chapter 7 or clearing of debts. I haven't seen the data yet, but what this act was supposed to do was force debts to be paid off and not discharged. What essentially this did was create more debtors for banks and thus increase money supply while banks found people who could fog mirrors could get credit cards and be forced to pay them. Anyone who thinks they can just move their school debt to credit cards and not have to pay them back is taking the chance that they won't make the means test on Chapter 7.

  2. How is this not fraud, or at least intent to commit fraud? Does the fact that the financial oligarchy regularly commit fraud mean that it's okay for everyone to game the system?

    You do realize that just pisses off us folks who have been prudent. Eventually the prudent stop being okay with being the chumps of the shenanigans.

  3. I have a lifelong and good friend that I grew up with that has his Master in Dietetics. If I remember our past conversations correctly (at the time), he put himself through post-graduate school by using the zero-interest on debt-transfers (as well as some scholarship support). He would get student loans, then roll them over to a credit account at zero percent (for 1-2 years) and then work his butt off to pay the balance (when he could work). If he didn't pay the balance, he would roll over the remainder (as well as any new student loan debts) to a new card with zero interest for a year or two.

    Sure, he still ended up with some debt, but it is far lower than what would have otherwise been and he always paid due diligence to what the rate would be after the "promotional period" (so that it wouldn't become a downward spiral). I do believe that he has transferred the remainder to a personal loan at some outrageously low rate (he has fantastic credit).

    I guess that the biggest problem for him right now is that he got his Master in Dietetics, which pays roughly as much as if he had just got a job after his undergrad and stuck with it (assuming the raises merely kept pace with CPI). Good thing for him that he can stretch a dollar further than anybody I know on this planet-- A true genius of thrift.

    The 'ol "you can't declare student loan debts in bankruptcy" certainly is no longer a concern, he probably bypassed this by complete chance; this rule was bypassed just the same.

  4. How is this not fraud, or at least intent to commit fraud? Does the fact that the financial oligarchy regularly commit fraud mean that it's okay for everyone to game the system?