Government-backed student loan debt almost always survives a bankruptcy discharge. Unless you are severely, permanently disabled and unable to work, your loans will likely still be there long after the court grants your discharge. So, is there any benefit to filing for bankruptcy if your school loans are overwhelming?
A Chapter 13 Plan
Dayton, Ohio Bankruptcy Attorney Chris Wesner explains that a Chapter 13 bankruptcy, can reduce the loan payments for the three to five years the debtor’s plan is in place. Student loan debt is no exception.
At the beginning of a Chapter 13, the debtor agrees to pay a certain percentage of all “unsecured” debts, such as credit cards or medical bills. (Secured debts – home mortgages or car loans – will be paid in full unless other arrangements are made.) The debtor pays into the plan, and the bankruptcy trustee then distributes money to these unsecured creditors. When the plan ends, the court discharges, or cancels, whatever balance remains.
Student loan treatment
The debtor includes student loans in
his plan, and they are paid at the same percentage as unsecured debts. Likewise, the trustee sends the scheduled payment to the student loan holder. However, when the debtor’s plan ends, the student loans are not discharged. The debtor’s loan payments will resume.
Benefit
While it is true that the loans will not be discharged, the borrower should be in a better position to pay if all the other unsecured debt is gone.
Each debtor with student loans will have different financial circumstances. It is important to consider the ratio of other debt to the amount of school loans. Loans made privately, directly through a bank, may be dischargeable. An experienced Dayton, Ohio bankruptcy attorney can examine your situation and develop solutions specific to your personal story.
Please, contact us for an appointment.