Last week, we discussed how it might be possible for your student loans to be at least partially discharged if you can prove “undue hardship.” This week, we will cover what you can do if your loans were not discharged in court. More specifically, we will focus on Chapter 13 bankruptcy.
While Chapter 7 allows some options of relief from debt payments, Chapter 13 can really make payments easier for the debtor through a well-constructed bankruptcy repayment plan.
How Chapter 13 Bankruptcy Can Help with Student Loan Debt
In Chapter 13 bankruptcy, student loans, credit cards and medical bills are all classified as non-priority unsecured debts. These debts do not have to be paid in full while you are undergoing your bankruptcy repayment plan, which can sometimes last for up to five years.
One benefit of bankruptcy is the automatic stay, which also exists in Chapter 7 bankruptcy. When this goes into effect, then your student loans and much of your other debt will be placed on hold. Additionally, this requires creditors to stop harassing you with their incessant phone calls for loan payments during this time.
The automatic stay is usually much longer in Chapter 13 bankruptcy than in Chapter 7 bankruptcy, because of the 3 to 5 year repayment plans rather than months it takes to finalize a Chapter 7 case. However, the phone calls from the creditors are allowed to continue when the bankruptcy repayment period ends.
How is My Bankruptcy Repayment Plan Determined?
Your disposable income will play an important part in determining how much of your loans that you have to pay each month to satisfy your court-determined bankruptcy repayment plan. Keep in mind that interest will accrue throughout the bankruptcy period.
At the end of your plan, your unsecured debts may be discharged, but you will have to pay what remains of your student loan debt. However, the discharging of your unsecure debts may place you in a stronger position to pay your outstanding student loan debts now that you have more breathing room.
A bankruptcy attorney can help you create the best atmosphere for student loan repayment during your bankruptcy process. In some instances, a repayment plan can be created that makes student loans more of a priority than your other debts.
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[Judd’s Judgment: A recent study found that about 60 percent of bankruptcy filers make less than $30,000 a year.]
Law Firm of Kevin D. Judd – Maryland and Washington DC bankruptcy attorney