Student Loans in Bankruptcy
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ARE STUDENT LOANS DISCHARGEABLE? Student loans have a very unique position created by the U.S. Congress. Under Federal law, most student loans can only be discharged in bankruptcy if you meet the "undue hardship" standard. Although this can be done, it's incredibly difficult to substantiate without some evidence of medical problems and/or inability to repay.
CAN I REDUCE MY STUDENT LOAN PAYMENTS DURING BANKRUPTCY? Possibly. During bankruptcy, student loan payments can often be paid outside of your Court case. This means that you can often use a deferred or income-based repayment plan, in combination with bankruptcy, to significantly lower your payments to all of your creditors.
CAN I USE CHAPTER 7 OR CHAPTER 13 FOR STUDENT LOANS? Both Chapter 7 and Chapter 13 will list student loans as a debt. If you choose a chapter 13 filing, you will often pay this "outside the plan" as a "long-term debt," or you will repay pre-petition balance at a rate that's fair to other unsecured creditors. But this can create issues when you file, so you may want to speak with a student loan bankruptcy lawyer.
WHAT ARE STUDENT LOANS CONSIDERED FOR CLASSIFICATION OF DEBTS? Student loans are considered a non-priority, unsecured claim. This is a challenging position for a non-dischargeable debt, because it may leave the debtor with less bargaining power with the Department of Education or a private lender and it does not often allow the debtor to discharge the debt 100% entirely.
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