Chapter 13 bankruptcy Can Still Help With Non-dischargeable Student Loan Debt
Despite the changing climate toward leniency, it is still challenging to discharge student loans in a Chapter 7 or 13 bankruptcy and, at a bare minimum, it could be cost prohibitive to do so. However, even if filing an adversarial complaint to procure an Order discharging your student loans is not in the cards for you, filing for Chapter 13 bankruptcy can still help you delay student loan payments and reduce your monthly expenses. To have your student loans discharged you would or Lee should retain an experienced bankruptcy practitioner to file an adversarial complaint pursuant to which you would have to prove that paying your student loan debt back would cause you to suffer "an undue hardship".
In most jurisdictions, including the districts of New York and New Jersey, to prove undue hardship you must show that:
- you can’t maintain even a minimal standard of living if you have to pay back your student loans
- these circumstances are likely to continue for a substantial portion of the loan repayment period, and
- you have made a good faith effort to pay back your student loans.
Also, see the other article in this website entitled "Can I Discharge My Student Loans", to learn more about the general non-dischargeable nature of student loans in bankruptcy.
Chapter 13 Bankruptcy Can Still Help You Manage Student Loan Debt
If you can’t wipe out your student loans with your prospective discharge order, filing for Chapter 13 bankruptcy can provide you with the ability to manage your student loan debts for more than a Chapter 7 petition. To begin with, as with the Chapter 7 case, when you file for bankruptcy, the automatic stay prohibits most creditors (including student loan lenders and their collection agencies) from trying to collect your debts from you. This means that you will not be required to make any student loan payments directly to your student loan lenders and/or collection agencies outside of your Chapter 13 plan payment to your Chapter 13 Trustee.
In any Chapter 13 bankruptcy case, student loans are classified as general unsecured debts (like medical bills and credit card debt). In most 13 cases, debtors have little or no disposable monthly income, so their monthly Chapter 13 plan payments are very low because they are usually not be required to pay a lot of money to their general unsecured creditors. Since your student loan creditors will be treated just like all of your other general unsecured creditors in your Chapter 13 case, a low chapter 13 plan monthly payment will serve to delay recovery by your student loan creditors for the length of your chapter 13 plan/case, i.e., up to five years. Keep in mind, however, that interest will continue to accrue on your student loan obligations and you will still be on the hook for paying off your student loans back after bankruptcy unless, of course, you previously qualified and/or continue to qualify for 1 of the many income-based and income contingent repayment plans offered by the US Department of Education for federally backed student loans (the vast majority of debtors' student loans are federally backed). See article in the bankruptcy specific section of our website entitled "Can I Discharge My Student Loans in Bankruptcy).
Other Options for Managing Student Loan Debt
If you are struggling with your student loan payments but you don’t want to file for bankruptcy, you may have other options available to you. Depending on your circumstances and the terms of your loan, you may be able to:
- reduce or eliminate your monthly student loan payment altogether based on 1 of the U.S. Department of Education’s income-based and/or income contingent repayment plans, or
- consolidate your loans to lower your interest rate or monthly payment, or
- ask for a deferment or forbearance of your payments, or
- qualify for cancellation of your debt because of special circumstances such as school closing, death, disability, or employment in certain occupations.
To learn more about how Chapter 13 Bankruptcy can help you manage student loan debt, call (201) 878-4630 or contact a Teaneck bankruptcy lawyer from our firm today. We offer free initial consultations, quality services at competitive rates and effective representation.