The latest Government estimates are that outstanding student loan debt in the United States exceeds 1.2 trillion dollars and is continuing to climb. Research by one of the big banks indicated that as many as two thirds of all student loans had a default in payment at one time or another. It is very obvious that there is a student loan crisis in America and it is only getting worse.
First, the bad news. Most student loans cannot be discharged in bankruptcy. This means if you go through a bankruptcy case you would still owe any balances on the student loans when the bankruptcy was completed. There are very limited exceptions to this rule that we will deal with in another post.
The good news is that Chapter 13 bankruptcy can be a big help to someone with student loans that they cannot pay and can help stop the collection efforts of the student loan companies. Even if you cannot pay all of your student loans in a Chapter 13 Plan that can last up to 5 years, you would have the student loan collectors off your back so that you would have breathing room to try and reorganize and hopefully, your situation would be better at the end of the 5 year Plan. It is even possible that you could finish your Chapter 13 Plan that paid only a small part of the student loans and then turn around and file a new Plan and have another 5 years without having to deal with the aggressive collection tactics. Of course you would have to qualify for Chapter 13 and that would depend on your situation at the time you were looking into filing, but there is nothing in the Bankruptcy Law that would prevent you from using Chapter 13 to deal with your student loans especially if the collection of the loans was causing you and your family a financial hardship.
So, if nothing else, you can at least stall the student loan collectors for up to 5 years by forming your own repayment plan that may pay very little on the outstanding debt but at least you would have a chance to regroup and hopefully get your finances in better shape and then be able to deal with the student loans in the future. If the loans are not too large, you might be able to pay them off in the Chapter 13 and be debt free when you complete the Plan.
First, the bad news. Most student loans cannot be discharged in bankruptcy. This means if you go through a bankruptcy case you would still owe any balances on the student loans when the bankruptcy was completed. There are very limited exceptions to this rule that we will deal with in another post.
The good news is that Chapter 13 bankruptcy can be a big help to someone with student loans that they cannot pay and can help stop the collection efforts of the student loan companies. Even if you cannot pay all of your student loans in a Chapter 13 Plan that can last up to 5 years, you would have the student loan collectors off your back so that you would have breathing room to try and reorganize and hopefully, your situation would be better at the end of the 5 year Plan. It is even possible that you could finish your Chapter 13 Plan that paid only a small part of the student loans and then turn around and file a new Plan and have another 5 years without having to deal with the aggressive collection tactics. Of course you would have to qualify for Chapter 13 and that would depend on your situation at the time you were looking into filing, but there is nothing in the Bankruptcy Law that would prevent you from using Chapter 13 to deal with your student loans especially if the collection of the loans was causing you and your family a financial hardship.
So, if nothing else, you can at least stall the student loan collectors for up to 5 years by forming your own repayment plan that may pay very little on the outstanding debt but at least you would have a chance to regroup and hopefully get your finances in better shape and then be able to deal with the student loans in the future. If the loans are not too large, you might be able to pay them off in the Chapter 13 and be debt free when you complete the Plan.
David E. Phillips
1/27/2016
1/27/2016