Student Loans and Credit Cards
You have graduated from University and have been unable to find a good paying job in your area of expertise. The periods of non-repayment and interest relief of your student loan debt have been maxed out. You are starting to get letters and/or phone calls from a collection agency. A friend tells you that he was in the same situation last year. He solved his problem by paying his student loan payments with his credit card. His logic was that the collection agency got off his back and he had no stress. If he got a good job, there would be enough money to pay everyone – even though he knew that the interest on the credit card was higher than the interest on the student loan. Plus, he got “points” on his credit card. The friends’ research pointed out that if he ever had to go bankrupt in the future, all of the credit cards debt should be included in the bankruptcy but student loans could not be included in the bankruptcy unless he was out of the school for more than seven years. He had the ultimate “win-win” situation.
Well, not quite. The interest rate on the average credit card is so high in relation to the interest on student loan debt, that any benefit from “points” is insignificant. If you do wind up filing an assignment in bankruptcy and your trustee (or the creditors) determine that you intentionally converted your student loan debt to credit card debt, be prepared for there to be an examination under oath before an Official Receiver (a representative of the Office of the Superintendent of Bankruptcy) who may recommend an opposition to your discharge from bankruptcy.
At the very best, you will have to convince the licensed insolvency trustee/creditors/court that you had every intention of paying your debts and it was only a change in your financial circumstances that caused you to file the bankruptcy. As the worst, there will be a finding of an intent to commit fraud – a debt for fraud is not discharged in bankruptcy.
If the above is similar to your situation, please have a discussion about it with your trustee before signing any papers.
Contact Rumanek & Company Ltd. for more information on bankruptcy and debt solutions. Or please fill out the free bankruptcy evaluation form. To learn more please visit our YouTube Channel. Rumanek & Company have been helping individuals and families overcome debt for more than 25 years.