How Can Chapter 13 Bankruptcy Help Me Pay My Student Loans?
Hoping for better future prospects, more and more students are investing in their education by choosing to opt for student loans. While Federal government issues guaranteed loans with multiple repayment programs like income-based repayment plans, the students who enroll in expensive programs or those who have already exhausted their government loans have to opt for private student loans. Private student loans may not always provide such options or flexibility in repayment of loans.
In a volatile world like ours, when things don’t always go as planned, the students may be unable to find an immediate solution to repay their student loan debt.
However, we often hear experts say that bankruptcy helps you pay your student loans. Let’s look at the role of bankruptcy in helping students in tackling their student loan debts.
Unlike other signature debts, student loans are generally non-dischargeable in bankruptcy unless the student is medically unable to repay the loan. In such as case, the student can ask for a discharge of a loan under “undue hardship”. However, the definition of “undue hardship” has been limited to situations when there is no possibility that the student can repay the loan. Such instances usually include medical disability of the student to repay the loan.
Despite the fact that bankruptcy doesn’t discharge you from your loan debt, it could still be the silver lining in case you are burdened with your private student loan debt. There are multiple other ways in which bankruptcy helps students in their financial upheavals, supporting them to recover from the problem.
Let’s look at how knowing these bankruptcy basics may help you solve your private student loan debt issues.
1. Partial discharge – Although it may be nearly impossible to get a discharge of all your debt, you can try getting a partial discharge in case you can show why it is not possible for you to repay the full debt. There have been several instances all over the United States where the court has granted partial discharge. You can consult with a bankruptcy attorney to find out whether your case qualifies.
2. Time extension- The main element of a bankruptcy petition is the “automatic stay against collections.” Such a stay stops almost all collections until the completion of the bankruptcy case. Therefore, filing a bankruptcy petition lets you buy yourself some time to make things work. To do so, you can file a petition under chapter 7 or chapter 13 bankruptcy. While chapter 7 provides a short extension of some months, chapter 13 can be used for approximately five years, which happens to be a much better option than chapter 7.
Let’s understand chapter 13 bankruptcy in a little more detail.
Chapter 13 not only buys time for the students to recover, but it also helps them manage the repayment of their loan debt. Chapter 13 keeps your other debts such as credit card payment on a higher priority than student loans and thus in case a student has other higher priority debts, the amount of the student loan will keep growing because of the accrued interest over the years and the small payment made (if any) will go towards paying the other non-unsecured loans.
In such a situation, the student may end with more loan debt at the end of the petition; however, despite a higher amount of loan at the end, chapter 13 proves to be a useful tool for the following reasons:
1. Payment of unsecured debts – As chapter 13 regards other unsecured debts as a priority over student loan, it discharges or pays off those. Thus, by the end of the bankruptcy, students will have to repay only the student loan.
2. Recovery time- Chapter 13 gives students time to recover from their financial crisis by removing the burden of student loans for up to 5 years. They can work towards improving their situation without worrying about the pressure from private student loan lenders and monthly payments.
3. Continued support- If after discharging your other unsecured debts, you are unable to repay your student loan, you can file another chapter 13. In such as case, the lender will be obliged to take what you can afford.
You can file chapter 13 any number of times till the total amount is paid. By doing so, you can protect yourself against any threat or pressure from the loan lender.
Call Cibik & Cataldo today at 215-735-1060 if you have a student loan that you are unable to repay and want to know what options you have.
We are a debt relief agency that helps people
seek bankruptcy protection under federal law