Bankruptcy and Student Loans
On behalf of Powell Law Offices, P.C. posted in personal bankruptcy on Wednesday, November 26, 2014.Overwhelmed With Student Loans? Bankruptcy can Help
Rising costs of education and an increased importance of having a college degree in the workforce has resulted in massive student loan debt for a number of young adults in America. Many cannot afford loan payments alongside necessary expenses; however, defaulting on these loans can wreak havoc on your credit and even result in the loss of professional licenses or job opportunities.
While student loans are not dischargeable under the Bankruptcy Code in most cases, the process can still result in a "time out" for borrowers to catch their breath and hopefully increase earnings by the time collection efforts may continue. Chapter 13 Bankruptcy can help in one of two ways.Time Out
The automatic stay is in place from the moment of filing bankruptcy and prohibits your student loan lender from collecting or attempting to collect on a debt. In most cases, this will be in place for the life of the bankruptcy, and student loan companies are required to put your loans in a deferment status during this time. A successful Chapter 13 Bankruptcy can result in a five-year deferment, allowing you to reorganize and eliminate other debt before your student loan payments resume.Pay Off Your Loans for Good
Chapter 13 Bankruptcy can also help to consolidate your loan payments, with the possibility to leave you free and clear after five years. The automatic stay is in place and prevents outside collection efforts; however, student loan companies are allowed to receive a pro rata share of amounts paid to the Bankruptcy Trustee as a part of your Chapter 13 Plan. Depending on your income and plan payments, you could pay off a portion or the whole of your student loans alongside other creditors, which can effectively lower your monthly student loan payments. If paying off all creditors in full is within your reach, you may avoid interest charges incurred during the Bankruptcy.
In very limited situations, individuals may be able to receive a discharge of student loan debt. However, the process can be expensive, as additional litigation is required within the bankruptcy, and there is no guarantee that a discharge will be granted. Generally, Individuals must show that repayment is not possible and would cause an undue hardship which would prevent the debtor from paying necessary expenses such as rent and basic living expenses.