Debt Relief: Are Student Loans Included in Chapter 13?

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Debtors today are facing financial trouble for a variety of reasons, but no matter the reason, there are debt relief options available for most people. That does not mean, however, that all types of debt can be discharged in bankruptcy. In fact, students loans are debts that cannot be discharged under chapter 7 or chapter 13 bankruptcy, which are the two most common types used by individuals and families. However, student loans can be consolidated and, it is hoped, paid back in three to five years under chapter 13 bankruptcy.

Bankruptcy Options

The two most common types of bankruptcy for individuals and families provide means by which they can discharge some bills, pay down others, and get a fresh start without the burden of overwhelming debt. However, those two types of bankruptcy serve entirely different types of debtors and provide benefits for those in quite different circumstances:

  • Chapter 7 bankruptcy is also known as liquidation bankruptcy because it may require some types of property to be liquidated or sold to pay creditors. For those with little real property and little equity in what they do have, this provides a means by which they can have most of their debts discharged.
  • Chapter 13 bankruptcy is a type of debt reorganization that allows the debtor to retain their property and create a repayment plan to pay off or pay down most of their debt. If any non-priority debts remain at the end of the repayment plan, they may be discharged. However, priority debts are generally paid off first and cannot generally be discharged unless there is a hardship situation that the court will accept, which is rare.

Student Loans

In years past, only government student loans could not be discharged in bankruptcy actions. However, after the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, all student loans are now treated like priority debts, which cannot be discharged in bankruptcy. This is to prevent students from taking advantage of these loans and filing bankruptcy upon graduation, before they begin making significant money and acquiring property that can be harmed in a bankruptcy action.

The only option students may have for discharging their loans in bankruptcy is by filing a separation court motion called a Complaint to Determine the Dischargeability of a Debt claiming hardship. The primary conditions that may constitute hardship include:

  • The filer’s inability to maintain a minimum standard of living while repaying those loans
  • The filer’s inability to see improvement in the near future
  • The filer’s sincere attempts to pay those loans in the past

These circumstances generally only apply to those who are disabled or have some other life-altering condition.

Getting Legal Help with Student Loans and Chapter 13 Bankruptcy

While the rules for filing chapter 13 bankruptcy generally preclude the filer’s ability to discharge student loans, there are two other options. First, the filer can consolidate those loans and pay them back at a reasonable rate under chapter 13 bankruptcies. Alternatively, they can file a motion for hardship, asking for a discharge. A bankruptcy attorney knows the bankruptcy laws and the courts in their jurisdiction. They can help a filer understand the options to make the most of their bankruptcy action and provide the debt relief they need.