There are many considerations revolving around student loans whether you are repaying them, shopping for student loans for you or a child, or are currently in default. Student loan debt is among one of the types of debt that is not typically dischargeable in a Chapter 13 bankruptcy. However, while you can’t eliminate the debt, you may be able to obtain a more affordable payment plan and Chapter 13 bankruptcy may be able to help in that regard.
Chapter 13 Bankruptcy & Student Loan Debt
If you are behind on payments and your student loan debts have been placed in default, there are a few steps to approach the debt before considering Chapter 13 bankruptcy. Among these solutions that may be best for your situation are: canceling the student loans, getting a consolidation loan, or taking advantage of the Department of Education’s loan rehabilitation program. There are also a number of federal repayment plans that base your student loan payments on your income. If you have tried all of these methods that apply to your student loan debt situation to no avail, you make look at bankruptcy as a valid option.
As previously mentioned, bankruptcy courts do not typically discharge student loans in bankruptcy unless an exceptional undue hardship can be demonstrated. While it’s not often that individuals are able to discharge all or part of your student debt, a chapter 13 bankruptcy may be able to reduce that amount you have to pay. An important caveat to this is that you will have to pay back whatever amount of student loan debt is left after the conclusion of your Chapter 13 bankruptcy. An added benefit though, is that a Chapter 13 bankruptcy offers an automatic stay that prohibits collection actions related to your student debt, which can afford additional time to manage your debt and finances.
Chapter 13 bankruptcy is design to allow you to pay back only what you can afford at the time, and can provide and extra three to five years to improve your financial situation in order to pay back the student loans. Consulting a bankruptcy attorney is an excellent first step in finding out the best way to get a handle on your student loan payments. Your bankruptcy lawyer can help you understand the undue hardship test, as well as, how Chapter 13 bankruptcy repayment plans work and how they can help you.