Student Loans and Bankruptcy Explained

Good news. Chapter 13 bankruptcy can reduce student loan payments. A common misconception about student loans is that they cannot be dealt with in bankruptcy at all.  While it is true that it is very difficult to discharge student loans by filing bankruptcy (more on that below), you can pay or even reduce the amount of student loan debt you pay in Chapter 13 bankruptcy.  In fact, you can file a Chapter 13 to deal with student loans.

Let’s say for example that you’re paying $750 a month to your student loans creditors, plus $750 to your other unsecured creditors, like your credit cards and medical bills, but you’ve experienced a job change or increased expense, and you can only afford to pay $1000 to both per month.  While the student loan company may agree, the other creditors might not, and may threaten to sue you.  In this circumstance, you could enter into a Chapter 13 payment plan to pay only $1000.  If 80% of your debt consists of student loan debt, your student loan creditors will get the majority of your monthly payment – in other words, your other creditors wind up subsidizing your student loan debt.

Another situation occurs where you haven’t paid your student loans and the creditor becomes aggressive, garnishing your check each month. The amount they are taking is much more than you can afford.  In many cases, you can file a Chapter 13 to reduce your student loan payment through the bankruptcy.  While this can increase the amount you owe later, it will give you immediate relief.

Finally, while student loan debt is not generally or easily discharged, there are government programs available which handle certain circumstances, like disability, and if that is not effective, there are potential options through both Chapter 13 and Chapter 7.

Contact us now at 303.630.9641 so we can go over your student loan debt options in detail, or contact us with our form below.