Bankruptcy and Law School Forum

[Fark-o-vision]

I've generally been afraid of broaching the subject, because I know there is a social stigma against it. However, I can't find good information no matter how hard I look. I know bankruptcy can hurt you in certain situations coming from an MBA, but I'm not as sure about Law school.

For those who came from undergrad, it isn't an issue. however, I had a professional life before this. I had a respectable mortgage at a decent rate, but when my wife and I were both laid off within four months of each other, we couldn't make it work. We tried renting, but the market just collapsed beyond our ability to absorb. Now that we're back on our feet it's too late and we've lost the house and the car. We could try and pay off the roughly 16K for the car, but there isn't any working with the home.

Basically, I'm faced with paying off the majority of the debt and having a foreclosure on the record, or paying for a bankruptcy and having the extra saved for expenses. How much do legal employers really care about a bankruptcy in a persons past?

Edit: Ripping is understood, but help is appreciated.

[rando]

Some state bars look into your credit for the purposes of character and fitness. Obviously this would be an issue. I doubt it would preclude you from practicing but you will probably get red flagged and have some splainin to do.

I don't know why legal employers would even know about this. Maybe govt. background checks will uncover it?

[malfurion]

I've read speculation on here that bankruptcies/foreclosures can cause difficulties with the C+F related to bar admittance. But you should definitely do some research on it and find out from people that really know what they're talking about (and report back what you find out). I'm not sure about legal employers, but I know in many fields it has become more and more common for a credit check to be part of the interview process.

I think the more pressing concern in your case, though, is how will you pay for law school? If you have a recent foreclosure and/or bankruptcy on your record, from what I can tell, you will certainly not be approved for any GradPlus loans. The maximum amount of Stafford loans you can take out is about 20k per year, which is only enough to cover cost of living at many law schools, so you would be restricted to only attending schools that offered you an almost full tuition scholarship with no chance of losing it after your first year.

I also bought my house at a bad time, and it's now worth roughly half what I owe on it, so I'm certainly past the point where the "smart" decision would be to walk away from it. However I'm in a state where they will order deficiency judgments, not a non-recourse state. But I've been able to keep making the payments, and I'm hopeful that I'll be able to rent the place out (hopefully to a family member) while I'm in law school. I won't have savings to cover any extended vacancy period, though. It's definitely going to suck having to worry that if something goes wrong and I end up with a foreclosure after the first 2 years of school and then can't get loans to finish the 3rd, I'd be screwed. But I don't really see any way around it at this point.

[ScaredWorkedBored]

Bad credit can be a C&F concern because it hints at a motive to steal from clients. The only times I've heard of someone actually being denied for it involved egregious bad faith conduct. Which is basically fraud so yeah, they should be denied for that.

I'd second the concern about how/why you want to incur at least as much debt as the mortgage you are currently having trouble with. You also need a cosigner because of the GradPLUS issue. They do run a credit check and either the foreclosure or the bankruptcy or being delinquent in paying the house or car debt will be "adverse credit history."

Your wife would not be able to be your cosigner because her credit history = your credit history at this point. You would need another credit-worthy adult who is willing to incur close to $100,000 in nondischargable debt on your behalf.

Have you given any thought as to how you might pay for law school?

[Fark-o-vision]

MY GPA and LSAT are in the area that I should be able to cover most law schools in my area without incurring additional debt, which would have been my plan to begin with. I'm really pretty debt adverse.

I'll look into the bar situation, which most seem to believe would be a bigger concern. Also, in terms of "credit", I know a couple people who have repaired their actual credit score in like a year, year in a half. My concern is the presence of the discharge.

My other option is to pay off the car and hope that the foreclosure is seen as a casualty of the market. It was a pretty reasonable loan that only ate like a quarter of our income when we had it.

[ScaredWorkedBored]

I'll look into the bar situation, which most seem to believe would be a bigger concern. Also, in terms of "credit", I know a couple people who have repaired their actual credit score in like a year, year in a half. My concern is the presence of the discharge.

That is the appropriate concern. Both student loans, which it sounds like you won't need, and the bar C&F, look deeper than the number. Exactly what the bar does varies by state but the applications I'm familiar with imposed a duty on the applicant to disclose bad debts.

So long as you're open about it and trying, the bar's not going to keep you out.

[goawaybee]

To OP and others who had to "eat it" over the last year or two, I feel for you.

To build out on this topic a bit I was wondering if settling a CC acct. would also fall under this whole C & F issue. Just went through it with Real Estate Comm. but got license before I settled that acct. so didn't have anything to disclose at the time. CC co was unwilling to work out a payment plan due to me being unemployed so I didn't really have many options, thought it wise to keep my house and take my hit on the CC now and rebuild Credit score over next 2 years or so.

It has a similar impact on Credit Score so I know the loan game will be a bit of a pain. Just wondering if it needs to or should be disclosed to LS vs. just wait until bar C & F pops up ?

I mean I understand that you made a mistake etc... and the amt. of years it sticks seems excessive. You can get a mortgage at a slightly higher rate with 12 months of solid payment history but yet I assume you would not be able to touch Grad Plus until the Bankruptcy clears.

[ScaredWorkedBored]

If the law school asks about debt (is there one that does???) don't lie. If C&F asks you to list bad debts - and they will define this specifically - don't lie to them either. That's really all there is to it.

[RUQRU]

... Both student loans, which it sounds like you won't need, and the bar C&F, look deeper than the number. Exactly what the bar does varies by state but the applications I'm familiar with imposed a duty on the applicant to disclose bad debts.

So long as you're open about it and trying, the bar's not going to keep you out.

Florida Board of Bar Examiners says:

Applicants have also been denied admission for deceptively or fraudulently discharging debts in bankruptcy proceedings, and avoiding rather than properly deferring student loans. The board does not require applicants to be current with all creditors and does not serve as a collection agency. Rather, the board requires honesty in dealing with creditors, and does not look favorably on attempts to deceive or hide from them.