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Asked 4 months ago - Burlington, IA
FlagI am in huge debt with private student loans and wondering if chapter 13 will get rid of the debt or will i have to conitnue paying after the five years of chapter 13.
Your student loan obligations will not be discharged in bankruptcy unless you file an adversary proceeding in you bankruptcy and show that repaying your loans will cause you "undue hardship" which Congress and the Courts have defined as meaning very close to you will never again be able to hold a job of any sort. So basically, no your student loans will not be discharged.
The criteria for eliminating a student loan are difficult to meet but well worth evaluating with a qualified consumer law attorney. At a minimum Chapter 13 can provide a safe harbor from the crushing burden of student loan repayment. We often file them for low income debtors who are being harassed or garnished by their student loan creditors. The idea is to lower your total monthly outlay to your creditors and keep your student loan creditor from even contacting you for a five year period.
Do you have other debt? If so, in many parts of the US, your other unsecured debts will be paid off in full through a Chapter 13 and your student loans will be paid on only after other debts are paid in full. However, if student loans are your only debts and if high interest rates & late fees, or the threat of garnishment is bugging you, Chapter 13 could be an option. The administrative cost of Chapter 13 can offset any advantage, so you have to study the math fully. An experienced Chapter 13 attorney will be able to properly advise you - otherwise, you are walking off a cliff blindfolded. Hope this perspective helps!
There is legislation being introduced in Congress this year to do something about this problem of getting rid of private student loans in bankruptcy. So, you should contact your representatives to let them know how you feel about this issue.
However, there is another strategy that may be of help to you in this situation. Even if you can't get rid of the student loan, you can make payments on them through a Chapter 13, which can last for up to five years. After that five year bankruptcy is completed, you can file another Chapter 13. This strategy will prevent you from having ever having to deal with collections or garnishments on those student loans, even if you don't qualify for a hardship discharge. However, interest will continue to accrue, so if you become able to payoff those loans, or create a repayment plan with the creditor, then you should do so. On the other hand, if you can hold off the loan repayment long enough, perhaps Congress will do something to reform this area of the law.
Are your loans guaranteed by the government or a non-profit? If so, the prohibition to discharge applies. If not, they ay be dischargeable.
Even if guaranteed, if you can meet an impossible standard, you can get a hardship discharge. It's pretty much "became so disabled after the loan that there's no chance of ever working in a paying field."
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