How Does Bankruptcy Help With Student Loans?
When Bankruptcy Doesn't Help (“The Bad”):
How Bankruptcy Does Help (“The Good”):
Alternatively, for Chapter 13 debtors who have few creditors other than student loans and/or who have a higher disposable income, Chapter 13 is a useful tool in reducing the required monthly payment on their student loans. For example, if the pre-bankruptcy minimum student loan payment was $1,000 per month, but the Chapter 13 debtor only shows a disposable income of say $500 per month, then at most, $500 per month (less the jurisdictional commission to the Chapter 13 trustee) will go towards payment of the debtor’s student loans. Student loan collectors are still prevented from attempting to collect by the automatic stay, but in this scenario, the debtor can reasonably expect to at least lower their monthly payments and hopefully reduce the overall principal balance by the time the Chapter 13 repayment plan is completed. Once the plan is completed (typically 3 or 5 years), the debtor can even file another bankruptcy case to achieve the same results and manage their monthly payments.
Whether or not bankruptcy can help solve or improve your student loan dilemma depends on the specific facts of your financial situation. If you are currently being garnished or otherwise harassed by student loan collectors, speak with a local bankruptcy attorney to determine how filing bankruptcy can help.