Student Loans in Chapter 13 Bankruptcy

In Chapter 13 bankruptcy, you might be able to reduce student loan payments during your repayment period.

Updated by , Attorney · University of the Pacific McGeorge School of Law

Although student loans cannot be discharged in bankruptcy except in rare circumstances, filing for Chapter 13 bankruptcy can allow you to reduce your monthly obligations if you struggle to make your loan payments. In this article, you'll learn more about how Chapter 13 bankruptcy can help you manage your student loan debt.

You should be aware that filing for Chapter 13 might extend the time for qualifying for student loan forgiveness. Consult a bankruptcy lawyer familiar with student loans in bankruptcy before proceeding.

Student Loans Usually Aren't Forgiven in Bankruptcy

Your bankruptcy discharge does not automatically wipe out certain types of debt. These are referred to as nondischargeable debts, and unfortunately, student loans are one of them.

Generally, the only way to discharge student loans through bankruptcy is to prove that paying them back would be an "undue hardship" for you. This is extremely difficult to prove and is usually only granted in rare circumstances, such as severe disability. As a result, in almost all cases, you will still be required to pay back your student loans after receiving a bankruptcy discharge.

Student Loans Are Treated As Nonpriority Unsecured Debts in Chapter 13 Bankruptcy

In Chapter 13 bankruptcy, student loans are treated as nonpriority unsecured debts like credit cards and medical bills. You are not required to pay them off in full through your Chapter 13 repayment plan.

Student loans receive a pro rata share of the total amount paid to unsecured creditors in your plan. The amount paid depends on your discretionary income or the funds remaining after you pay allowed monthly expenses and required Chapter 13 plan debt.

How Chapter 13 Can Help With Student Loan Debt Obligations

Even though student loans are not automatically dischargeable in bankruptcy, filing for Chapter 13 can help you manage your monthly obligations. The following are some of the ways Chapter 13 bankruptcy can help.

The Automatic Stay Prohibits Student Loan Collection

Chapter 13 bankruptcy can stop your student loan company from harassing you during your bankruptcy for up to five years. Why? When you file for Chapter 13 bankruptcy, an automatic stay goes into effect, prohibiting almost all creditors from collecting their debts, including student loan lenders.

Chapter 13 Bankruptcy Can Delay Student Loan Payments

Since you are protected by the automatic stay, you do not have to make regular student loan payments during Chapter 13 bankruptcy. Your student loans will be paid through your Chapter 13 payments according to the terms of your plan.

If you have little or no disposable income, you may not have to pay anything towards your student loans in your repayment plan. However, keep in mind that interest will continue to accrue on your student loans during bankruptcy, and you will still be required to pay them back after your case is closed.

Chapter 13 Bankruptcy Can Reduce Your Monthly Obligations

You can still repay some of your student loans through your Chapter 13 plan. The benefit of Chapter 13 bankruptcy is that you only pay back what you can afford. If you cannot afford your regular student loan payments, you can lower your monthly obligations by paying a smaller amount through your Chapter 13 plan. Since Chapter 13 bankruptcies can last as long as five years, this can allow you time to increase your income and more easily afford your payments after bankruptcy.

Paying Student Loans Outside Chapter 13 Bankruptcy

Under certain circumstances, you might be able to continue making student loan payments outside of bankruptcy. However, whether you can do this depends on where you live. Most jurisdictions don't allow debtors to pay student loans outside of bankruptcy because they believe it unfairly discriminates against other unsecured creditors by reducing the amount they're paid through bankruptcy.

Need More Bankruptcy Help?

Did you know Nolo has made the law easy for over fifty years? It's true, and we want to ensure you find what you need. Below you'll find more articles explaining how bankruptcy works. And don't forget that our bankruptcy homepage is the best place to start if you have other questions!

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Helpful Bankruptcy Sites

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We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.

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