Restructuring Student Loan Debt in Chapter 13
If you’ve accumulated substantial student loan debt, but don’t have the income to pay it off, you may be considering bankruptcy as a way of managing your obligations. Student loan debt can, in limited circumstances, be discharged in Chapter 7, but the requirements are strict. For more information, see our blog on the hardship discharge of student loans. In most instances, a Chapter 13 bankruptcy can provide partial relief, by holding off collection of student loans in default while these loans get partially paid.
In a Chapter 13 bankruptcy, you have the opportunity to use a court sanctioned repayment plan over 3 to 5 years. In exchange, for the entire 3 to 5 year period, you get the benefit of the automatic stay, which prohibits creditors from calling, writing, filing legal action or taking any other measures outside of the bankruptcy to collect a debt from you. The automatic stay goes into effect immediately upon filing your petition. It is fully applicable to student loans. It continues as long as you are in bankruptcy, and for Chapter 13, as long as you are making payments according to your approved plan.
While any unpaid balance on such loans will still be due at the end of the plan, you will have hopefully paid down the loans based on your actual ability to pay, and not based on what a student loan debt collector or collection attorney demands of you.
With a Chapter 13 filing, you can get immediate relief from attempts to collect on your student loans. In addition, student loans are considered unsecured debts in a Chapter 13 proceeding, similar to medical expenses or credit card bills. Accordingly, they don’t have priority and do not have to be paid off in full as part of the petition. The amount you will be required to pay monthly will be based on how much income you have left after payments to secured creditors.
The specific benefits of a Chapter 13 when you have unmanageable student loan debt include:
- The ability to stop aggressive student loan debt collectors for a period of time.
- The ability to pay on your loans based on your income and ability, while you pay off other obligations, so that, once your bankruptcy is complete, you can better afford to make student loan payments
Contact Our Office
At Neuner & Ventura, LLP, we work hard to alleviate the stress, anxiety and confusion that come with a potential bankruptcy filing. We offer a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney. For an appointment, call us at (856) 596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.
Representing Clients across South Jersey