Bankruptcy & Student Loans

Student loan debt can be paid during bankruptcy. Prior to filing the payments that you previously made toward credit card debt, medical debt, loans, old utility bills and other unsecured debt can now be paid to student loan debt instead. Most consumer bankruptcy cases fall into one of two categories, Chapter 7 cases and Chapter 13 cases. In a successful Chapter 7 bankruptcy certain debts are generally discharged in a matter of a few months. In a Chapter 13 case, a person can choose to repay certain debts over a period of time up to 5 years and in some case in 3 years. How does it help? By discharging, or cancelling, most of your other personal and dischargeable debt in a Chapter 7 bankruptcy, you can free up income to use to pay on your student loan. So instead of paying that pesky credit card collector that calls you all the time and at night, you can discharge the credit card debt in bankruptcy and now use those funds towards the obligations that you have with the student loan. The result is to use bankruptcy to eliminate dischargeable debt and give you the flexibility by freeing up your funds to pay debt you cannot discharge in bankruptcy such as in this case the student loans.

As a Debtor in bankruptcy you should consider adjusting the monthly household finances by making additional payments to the student loan debt as can be afforded. Your creditors in a Chapter 13 share the proceeds from you Chapter 13 plan payments based on the group the debt belongs to. It is important to make sure the student loan receives a substantial payment each month both to cover the accrued interest and to reduce a portion of the principal balance.

One of the most referred to question/myths in Bankruptcy matters for Chapter 7 and 13 filings is the statement, “What do I do with my student loan since I cannot file bankruptcy on them.” During the bankruptcy, creditors are not allowed from attempting to collect more money than the bankruptcy system allows. This prohibition of collection is referred to as the automatic stay.

Over the years I have heard this statement many, many times and I know of many clients who said that in fact, you must include your student loans when you file bankruptcy. Bankruptcy can be of assistance to you in paying student loans, the ability to discharge a student loan is very, very difficult and to do so is often met with denials unless you have the perfect case and you meet the strict requirements.

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