Are you struggling under a mountain of debt, including student loans? Have you contemplated seeking bankruptcy protection, but heard that student loan payments may not be discharged in a bankruptcy filing? There are strategies available that can help you get your debt under control. The law office of John Hargrave and Associates can help.
Student Loan Payments and Bankruptcy
As a general rule, a student loan payment cannot be discharged in a Chapter 7 bankruptcy proceeding. The limited exception is when you can show that paying them back would result in an undue hardship on you. The circumstances under which such relief is granted are extremely rare. Under the test typically applied, you must show that you cannot maintain a minimum standard of living for you and your dependents if you have to repay the loans, that your current financial situation is unlikely to change for a significant time, and that you have made a good faith attempt to repay your student loans. As a practical matter student loans simply cannot be discharged in bankruptcy.
Even though you may not be able to discharge student loan debt, bankruptcy can help you manage that debt. First, by discharging other debts in bankruptcy, you can reduce the other debts that you have to pay, which makes your student loan payments more affordable. In addition, you can put student loan payments in a Chapter 13, or debtor reorganization, bankruptcy.
For purposes of Chapter 13, student loans are considered non-priority unsecured debts, similar to credit card or medical bills. This means that you are not required to pay them in full through a Chapter 13 filing. It also means that your student loans will only get a pro rata share of any amount paid to unsecured creditors in a Chapter 13 plan. Accordingly, during the period of the bankruptcy, you can negotiate a reduced monthly payment on your student loans. If your income is negligible, you may not have to pay anything.
While the bankruptcy is in effect, you will have the protection of the automatic stay (creditors will not be able to call or write in an attempt to collect from you). Interest will accrue, though, during the period of the bankruptcy, and you will be required to repay your student loans in full when the Chapter 13 bankruptcy period is done.
Contact John Hargrave and Associates
We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.