This evening, CBS ran an article about how declaring bankruptcy doesn’t help much with student loans and I have been running into many debtors lately who have significant student loan debt, so I wanted to do a blog post about what happens with student loans in bankruptcy.
Can I Get Rid of My Student Loans in Bankruptcy?
Unfortunately, student loans are in a special category and are generally not dischargeable in bankruptcy. That means that at the end of the bankruptcy process, your student loans are still there and have probably accrued interest and penalties as well. The exception to this is if you can prove that student loans are an undue hardship. This level of undue hardship is a very high standard and very few people qualify.
Some of My Student Loans are Private Loans – Can I Get Rid of Them?
Again, unfortunately when the bankruptcy laws changed in 2005, all debts incurred for higher education expenses were defined as student loans and are not dischargeable in bankruptcy, even if they are private loans.
Can I Still Pay My Student Loans While in Bankruptcy?
Chapter 7 bankruptcies tend to be completed in 3-4 months, so at least penalties and interest are not accruing over 3-5 years, like in a Chapter 13. Many debtors find that once the credit cards and other unsecured debts are eliminated in Chapter 7, they are better able to make regular payments on student loans. If your loans are federally-backed student loans, there are also many repayment options available for coming up with a payment plan outside of the bankruptcy.
Dealing with student loans in a Chapter 13 can be a little trickier. Because student loans are unsecured debt, they cannot be treated any differently than any other unsecured debt (such as your credit cards or medical bills). It is quite possible that your Chapter 13 plan payment is not enough to make the minimum payments on the student loans, so some negotiation or supplementing may be needed to keep up with the interest during the Chapter 13 plan.
If you have student loans, this is something we would talk about planning for during the bankruptcy process and even during the initial consultation. It is important for you to understand your rights and the best way to handle these nondischargeable loans.
This is just a basic overview and is not legal advice specific to your situation. If you are considering bankruptcy or are feeling overwhelmed by debt, you should speak with an attorney in your area for legal advice. To speak with me regarding your situation, please email me at [email protected] or call 925-586-6738.
