Our clients, Hunter and Cindi, have only been married five years, but are about "done in." They bought a house with a subprime mortgage, using wedding money for the small down payment. Then they both went back to school, so they could find better jobs and start a family. The interest rate ballooned, the job market in their fields grew stagnant, their marriage soured, and they each now have

Question

$25,000 in student loan debt. They are contemplating both divorce and bankruptcy. What are the issues you see for them?

What will be an ideal response?

Answer 1

We will have to determine their assets and debts in order to perform the means test. That will help us decide whether they are looking at a Chapter 7 or a Chapter 13 bankruptcy. Where are they on the house? Is it "under water"? Have they received a foreclosure notice? Would they be able to obtain a "short sale" without tax ramifications? Are their student loans separate or consolidated? If they are eligible for a Chapter 7 bankruptcy, they might be able to get double exemptions and a homestead exemption. That would mean filing before the divorce. On the other hand, a Chapter 13 would take much longer, they may not be able to wait long enough to reap the marital benefits (one filing and one fee, for instance), and they may not have enough assets to qualify. Their student loans would survive unless they could show undue hardship, but with no children and an education, it would be a stretch.