Student loan debt is the most pressing problem in the realm of consumer law. There is currently $1.48 trillion in outstanding student loan debt, and 44.2 million Americans have at least some outstanding student loan debt. The current student loan delinquency rate is 11.2%, and the median student loan payment for borrowers between the ages of 20 and 30 is $203 per month.
Generally speaking, student loans, whether federal or private, are not dischargeable in bankruptcy. If you can show undue hardship, meaning that repaying the loans would result in your inability to maintain a minimal lifestyle, you may be able to discharge part or all of your student loans. However, courts are extremely reluctant to find undue hardship.
Using Chapter 13 to Address Your Student Loans
Chapter 13 of the bankruptcy code is a means that is available to address student loan debt. Chapter 13 is a repayment plan that is usually 36 to 60 months in length. Your payments will be based on disposable income left after your reasonable monthly living expenses. For example, if you have $300 disposable income after your reasonable monthly living expenses, your Chapter 13 plan payments will be $300 per month. The money goes to the Chapter 13 Trustee, who distributes the money to your creditors, including your student loan creditors.
Chapter 13 Approaches to Student Loan Debt
Chapter 13 allows the creation of different classes of unsecured creditors, which includes student loans, credit card debt, health care debt, etc. You can treat student loans in one of three ways in a Chapter 13.
First, you can treat student loan debt the same as all other unsecured creditors. This means that student loan creditors will receive the same payment percentage as all other unsecured creditors.
Second, you can create a special class for the student loans and pay a higher percentage to the student loan creditors than to the other unsecured creditors.
Third, you can create a special class for the student loan creditors and pay zero percent to them while paying the remaining unsecured creditors.
The approach taken will vary depending on your individual circumstances.
Cautions Regarding Chapter 13 and Student Loan Debt
Some cautions are in order. First, your student loan debt will not be discharged via the Chapter 13 plan. Any unpaid portions on the student loans will remain, and interest will continue to accrue. But, all collection actions have to stop during the repayment period. Your other unsecured debt will be discharged if you successfully complete your repayment plan.
While not a discharge or long-term solution, Chapter 13 may be the best means to address your student loans if you are unable to pay them. Of course, once you complete your repayment plan, you should have more disposable income. But, if you still are unable to pay, you could always immediately file another Chapter 13 petition.
If you are struggling with student loan debt, contact a skilled bankruptcy lawyer to discuss your options.
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