Can A Chapter 13 Help with My Student Loans?

Bankruptcy Decatur Amy TannerMany folks who come into our office are carrying mountains of long term student loan debt. The good news is a lot of people are in the new income based repayment plans that are being offered. I previously wrote about some of these plan here.

There are also some circumstances where student loans can be discharged in bankruptcy, although the requirements to prove hardship are very stringent and, therefore, it is very difficult to attain a hardship discharge of Student loan debt, whether public or private. Robert Reese recently wrote about some hardship options. The current precedent that sets the standard for hardship discharge, called the Brunner test is now being challenged and we hope that will bring some changes to allow more folks to discharge their student loans when they have become too burdensome.

Another Student Loan Debt Option

What I want to discuss here, is another option that may be available for managing long term student loan debts. That is filing a chapter 13 bankruptcy, or debt consolidation, to pay some or all of the debt over a 3 or 5 year period. If you are up to date on your student loan repayment and are in good standing, this option may not make sense even if you are experiencing other financial issues for which you need to file a chapter 13. It may be best to continue paying the student loan creditor direct to maintain good standing. Trying to pay a long term student loan in a Chapter 13 is not always ideal. So much so, that I often refer to this process as a “band-aid”. However, if your paycheck is being levied or garnished by your student loan creditor or you are in default with your student loans, the chapter 13 plan is probably one of your best options.

Pro Rata Plan

Most people who file a chapter 13 plan, file a pro rata plan. In this time of the plan all of your unsecured creditors receive a percentage of what you owe and the remaining balances are discharged at the end of your chapter 13 plan term. Ed Woods recently wrote about chapter 13 plans and how they work. Your student loan debt is an unsecured claim against your bankruptcy estate and any student loan creditor can file a claim in your chapter 13 to share in the percentage distribution.  Including your long term student loan debt in your chapter 13 plan will immediately stop any levy or garnishment of your wages and prevent any student loan creditor from taking money from your pay or tax returns for the term of your chapter 13 plan.

Depending upon your ability to pay, you may be able to opt to subclass your student loan debt and pay the principal in full throughout the life of your chapter 13 plan. This is advantageous because unlike other general unsecured creditors, the balance of a student loan is not discharged at the end of a chapter 13 plan. This can be reviewed with your attorney on a case by case basis. Paying some or all of your student loan debt through a chapter 13 can be a benefit to you in the long run as compared to long term deferments of payment that can result in a mountain of interest accrual on the debts.

If you are having problems with your student loan debt or need to discuss any financial difficulties, contact our Bond & Botes office nearest you to schedule a free consultation with an attorney to discuss the options available to you.

Share This Page

Bond & Botes Law Offices

At Bond & Botes, we now offer full service bankruptcy consultation and filing over the phone or by video from the comfort and safety of your home or office. Please call 1-877-581-3396 or click here to setup your free phone or video consultation.

The lawyers at the Bond & Botes affiliated offices serve clients at offices in Anniston, Birmingham, Mobile, Montgomery, Opelika, Decatur, Huntsville, Florence, Haleyville and Gadsden, Alabama; Vicksburg, Hattiesburg and Jackson, Mississippi. Read our disclaimer here. You can view our Privacy Policy here.

Alabama Offices

Birmingham

2107 5th Avenue North
Age-Herald Building
Birmingham, Alabama 35203
Phone: (205) 802-2200


Shelby County Location
15 Southlake Lane, Ste 140
Birmingham, AL 35244
Phone: (205) 802-2200


Florence Location
121 S. Court Street
Florence, AL 35630
Phone: (256) 760-1010


Huntsville Location
225 Pratt Avenue NE
Huntsville, AL 35801
Phone: (256) 539-9899


Montgomery Location
311 Catoma Street
Montgomery, AL 36104
Phone: (334) 264-3363


Decatur Location
605 Bank Street
Decatur, AL 35601
Phone: (256) 355-2447


Haleyville Location
914 19th St.
Haleyville, AL 35565
Phone: (205) 486-3580


Gadsden Location
430-B Chestnut Street
Gadsden, AL 35901
Phone: (256) 485-0195


Opelika Location
216 South 8th Street
Opelika 36801
Phone: (334) 887-7666


Anniston Location
1302 Noble St #2C
Anniston, AL 36201
Phone: (256) 344-3559


Cullman Location
200 Second Avenue SW
Cullman, AL 35055
Phone: (256) 739-9866


Mississippi Offices

Jackson Location
5760 I-55 North, Ste 100
Jackson, MS 39211
Phone: (601) 353-5000


Hattiesburg Location
607 Corinne St, Ste B8
Hattiesburg, MS 39401
Phone: (601) 264-7200


Vicksburg Location
1212 Farmer Street
Vicksburg, MS 39180
Phone: (601) 353-5000

© 2024 by Bond & Botes Law Offices. All rights reserved. Disclaimer | Privacy Policy