Financial Q&A: Readers' money questions answered

Q:
How can a 20-year-old student loan that has been in default for nearly the entire time and is completely unrepayable by the debtor be dealt with? Is there a way to make an offer that the lender would accept that would be less than the more than $200,000 that is due? His family members would love to chip in if the debt would be cleared. The burden of the unpaid debt has been emotionally difficult for this poor man who has no money whatsoever.

M.L., via e-mail

A: Contact the collection agency, advises Mary McGrath, a Certified Public Accountant and certified financial planner in Champaign, Ill. Ask them for a form called "Statement of Financial Status" that the debtor will need to fill out. Once the lender receives this information, it is then in a position to renegotiate the loan. This may mean changing the payment schedule or reducing the amount due. That would be the first step.

Typically, these loans cannot be discharged in bankruptcy. There are special circumstances, however. If the individual is considered disabled, for instance, the loan may be discharged. Otherwise, the borrower will have to complete the forms and go through the steps to see if it qualifies to be discharged.

Ms. McGrath thinks that family members who want to help should provide funds for this person to see a lawyer who specializes in bankruptcy and who is familiar with student loans, since they are covered under a separate part of the bankruptcy code. Good legal advice may help emotionally and get the ball rolling in the right direction to get this matter resolved.

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