Unfortunately, student loans are extremely difficult to discharge in bankruptcy. But filing for Chapter 13 bankruptcy can still help you delay student loan payments and reduce your monthly expenses. Read on to learn more about how student loans are treated in bankruptcy.
Certain obligations (called nondischargeable debts) can’t be eliminated in bankruptcy. Except in rare circumstances, you can’t get rid of your student loan debt by filing for bankruptcy. In order to discharge student loans in bankruptcy, you must prove that paying them back would be an undue hardship on you.
In most jurisdictions, to prove undue hardship you must show that:
Keep in mind that it is extremely hard to prove undue hardship because it typically requires the existence of special circumstances such as severe disability and poverty.
Even if you can’t wipe out your student loans with your discharge, Chapter 13 bankruptcy can help you manage your debt. When you file for bankruptcy, the automatic stay prohibits most creditors (including student loan companies) from trying to collect their debts from you. This means that you will not be required to make student loan payments outside of bankruptcy.
In Chapter 13 bankruptcy, student loans are classified as general unsecured debts (like medical bills). In most cases, if you have little or no disposable income, your monthly Chapter 13 plan payments will be low because you will not be required to pay a lot to unsecured creditors. This can help you reduce expenses and delay student loan payments because Chapter 13 plans can last up to five years. However, keep in mind that interest will continue to accrue and you will still be on the hook for paying off your student loans after bankruptcy.
If you are struggling with your student loan payments but you don’t want to file for bankruptcy, you may have other options available to you. Depending on your circumstances and the terms of your loan, you may be able to: