Student Loans in Chapter 13 Bankruptcy (2024)

FAQs

Student Loans in Chapter 13 Bankruptcy? ›

In Chapter 13 bankruptcy, student loans are treated as nonpriority unsecured debts like credit cards and medical bills. You are not required to pay them off in full through your Chapter 13 repayment plan. Student loans receive a pro rata share of the total amount paid to unsecured creditors in your plan.

You typically can't discharge student loans in Chapter 13 bankruptcy, but you can include them in your repayment plan to help manage the debt. You can include both federal and private student loans in your Chapter 13 repayment plan, potentially lowering your monthly payments.

The bankruptcy court could agree that repaying your student loans would cause undue hardship, and either partially or fully discharge your loans. Or, you may still have to repay what you owe, plus collection costs, the additional accrued interest, court fees, and attorney fees.

It is difficult, but not impossible to discharge student loan debt in bankruptcy. You can discharge federal and private student loans in bankruptcy. Bankruptcy is often considered a last resort option because of the impacts it can have on your credit and the costs and time involved in filing for bankruptcy.

The burden is rigorous. "Simply put, if the debtor's reasonable future financial resources will sufficiently cover payment of the student loan debt - while still allowing for a minimal standard of living - then the debt should not be discharged.

Missing payments can rack up penalties and fees, which can make your debt more expensive. Your credit score will take a hit. If you default on federal student loans, the government could garnish your wages, tax refund and even Social Security benefits.

Student loans don't go away after seven years. There is no program for loan forgiveness or cancellation after seven years. But if you recently checked your credit report and wondered, “why did my student loans disappear?” The answer is that you have defaulted student loans.

Minimum Standards for Undue Hardship

Factors include that repaying the loan prevents the borrower from maintaining a minimal standard of living, the hardship will continue for a substantial part of the repayment period, and you've made good faith efforts to repay the loan.

Your loan can be discharged only under specific circ*mstances, such as school closure, a school's false certification of your eligibility to receive a loan, a school's failure to pay a required loan refund, or because of total and permanent disability, bankruptcy, identity theft, or death.

What is the Heroes Act of 2003 student loans? ›

Higher Education Relief Opportunities for Students Act of 2003 - Authorizes the Secretary of Education to waive or modify any requirement or regulation applicable to the student financial assistance programs under title IV of the Higher Education Act of 1965 as deemed necessary with respect to an affected individual ...

The Brunner test is essentially asking three questions to determine whether repaying your student loans is causing undue hardship: Are you financially able to make your student loan payments and maintain a minimal standard of living?

The general rule of thumb is not to borrow more than you expect to earn as a starting salary, said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit. That figure will vary a bit based on what you plan to study.

During your Chapter 13 bankruptcy pay period, you will make payments to your bankruptcy trustee, who will send a portion of your payments to your student loan lender(s). This money may reduce the principal or only cover interest, depending on the terms of your loan.

Orcutt, P.C, and board member of the National Association of Consumer Bankruptcy Attorneys. Justice Department data released earlier this month shows that 632 cases were filed in the first 10 months. Of the cases resolved, 99 percent have ended in either a full or partial discharge.

In short, no. Federal, state, and college-based student aid is not affected by a parent's prior bankruptcy. A student's grants and scholarships are neither increased nor decreased due to a parent's bankruptcy, and he or she can still borrow his federal entitlement of $5,500-$7,500 annually in Direct Stafford Loans.

In Chapter 13, you are not permitted to borrow or use any other form of credit unless you have written permission from the Bankruptcy Judge or the Chapter 13 Trustee. The only exception for borrowing without prior approval is in the case of an emergency for the protection and preservation of life, health or property.

The Chapter 13 plan reorganizes your various debts, including personal loans, into a monthly payment plan that lasts three to five years after your filing date. Unlike Chapter 7, you'll pay part of the money you owe on unsecured debts, but most Chapter 13 payment plans reduce the total amount you'll need to pay.

Debts dischargeable in a chapter 13, but not in chapter 7, include debts for willful and malicious injury to property, debts incurred to pay non-dischargeable tax obligations, and debts arising from property settlements in divorce or separation proceedings.

To prove undue hardship, you must file for bankruptcy and then present your case in an adversary proceeding. During this legal process, your creditors can challenge your request. The court will use tests like the Brunner Test to evaluate if repaying your loan would indeed cause undue hardship.