How do I protect myself from defaulted loans when they will no longer accept payments?

UPDATED: Feb 29, 2012

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How do I protect myself from defaulted loans when they will no longer accept payments?

My student loans were just accelerated because I couldn’t make a payment for the last 3 months. I have tried to work something out but the only option they are giving me is either pay them money I don’t have or they will turn it into a collection agency and go after my parents and their land since they co-signed. I have rent, utilities, food, gas and other monthly bills that are a necessity to survive. What options do I have to protect myself and my parents? Even though I have a job now and can pay again, I’m being told that it is no longer an option and that if I don’t pay them a couple thousand dollars (which I don’t have) they will take legal action against me. What do I do?

Asked on February 29, 2012 under Bankruptcy Law, Pennsylvania


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

If these were government-back or -insured student loans, you may not have any good options; those loans are not dischargeable in bankruptcy (except in very rare circumstances; less than 1% of people who apply for a hardship discharge receive one), which eliminates both that option and much of your leverage. Once you are in default, a creditor does not have to work with you--they may insist on payment in full, for example, and can take legal action if you don't comply.

If the amount owed is a few thousand dollars (or least paying that will then let you work out a payment plan), you may wish to see if can borrow that money, such as from your parents, to avoid the default.

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