The phrase “student loans” strikes fear in the hearts of most people nowadays. Many are facing high payments coupled with employment that doesn’t pay as expected or as the student had hoped it would. Now what? Chapter 13 bankruptcy may be an option.
Why student loans in Chapter 13 bankruptcy could provide relief.
It’s a well-known fact that except in rare circumstances, student loans cannot be discharged in bankruptcy. However, if you are struggling to make your student loan payments, filing for Chapter 13 bankruptcy will allow you to reduce your monthly obligation by combining all of your unsecured debt into one category. Your payments to your unsecured debt are then based off what you can afford to pay, given your other living expenses and assets.
Keeping student loan companies from garnishing your wages.
This can be extremely beneficial for someone who is being harassed or having their wages garnished by their student loan companies. When you file Chapter 13, a hold goes on all creditors while you are in the bankruptcy which provides a 3-5-year repayment plan. You can still pay back some of your student loans in Chapter 13 bankruptcy, but it is only based on what you can afford. If you cannot afford your regular student loan payments, lowering your obligations by paying a smaller amount through your Chapter 13 plan, may be the way to go. This allows you time to increase your income, deal with your other unsecured debt, such as credit cards and medical debts so that your payments to the student loans are more affordable after your bankruptcy. (Keep in mind the interest continues to accrue while you are in the bankruptcy).
Increasing debt limits could help Graduate or Doctorate level degrees with student loans in Chapter 13 bankruptcy.
It is not uncommon for Graduate or Doctorate level degree to come with $250k worth of student loan debt which only increases when payments are put into income-based payments which barely pay the interest. Debtors may find themselves nearing the debt limits for a Chapter 13 bankruptcy between student debt and long overdue credit card debts or Judgments. The good news is that beginning April 1, 2019, the debt limits in a Chapter 13 Bankruptcy will increase to $419,275 for a debtor’s noncontingent, liquidated unsecured debt. This opens the door for more people to qualify for such a beneficial option when dealing with unmanageable debt. If you think Chapter 13 might be an option to help you deal with mounting student loan debt, contact me for a free consultation.
About Sophia Dean
Sophia Dean is an experienced attorney who focuses on bankruptcy and foreclosure defense. She has represented debtors in all stages of debt collection. She is also the co-chair of the Orange County Bar Association’s Bankruptcy Committee. She can be reached by phone at (407) 512-4394,