Paying Student Loans in Chapter 13 Bankruptcy
Chapter 13 Bankruptcy Manages Student Loan Payments
Once an individual files Chapter 13 bankruptcy, the automatic stay prevents student loan collectors from trying to collect their debts. Creditors are thereby precluded from harassing you once you’ve filed Chapter 13 bankruptcy, which can last up to five (5) years. After the case is filed, student loan payments are typically made directly by the Chapter 13 trustee in accordance with the terms of the proposed repayment plan. This could result in payment amounts that are far less than what the individual was paying monthly towards their student loans before their bankruptcy case was filed. The amount that will be applied towards your student loan payments in bankruptcy will depend on whether or not you have disposable income to pay unsecured creditors.
The benefits of utilizing Chapter 13 bankruptcy to manage your student loans is that it prevents student loan collectors from collecting against or harassing you, it can delay payments being made on student loans altogether, or at a minimum, reduce the monthly payment amount as payments are made based on your disposable income and overall debt load. The downside is that, while payments may be reduced, interest will continue to accrue on the student loan balances. This is why bankruptcy attorneys often employ successive bankruptcy filings such as the “Chapter 20” or “Perpetual Chapter 13” as a way to continuously help those with massive student loan debt. We will compare these successive filing concepts in one of our future blog posts. Stay tuned…