Pay Your Student Loans During Bankruptcy

Most bankruptcy cases fall into one of two categories, chapter 7 cases and chapter 13 cases.  In a chapter 7 bankruptcy, certain debts are generally discharged, or wiped out, in a matter of a few months.  In a chapter 13 case, an individual can choose to repay certain debts over a period of time up to five (5) years.

In each type of bankruptcy, creditors are prevented from attempting to collect more money than the bankruptcy system allows.  Unfortunately, student loan debt is very difficult to discharge in bankruptcy.  But by discharging most other personal debt in a chapter 7 bankruptcy, you can free up income to use to pay on your student loan.  Money that you formerly paid toward credit card bills, medical bills, and other debt can now be paid to student loan debt instead.  So instead of paying that credit card bill collector that calls you everyday, you can discharge the credit card debt in bankruptcy and use your money to pay the student loan.

In chapter 13 bankruptcy, creditors share the proceeds of your payments based on the classification or group a debt belongs to. Student loan debt is classified as a general unsecured claim, similar to credit card debt.  There are exceptions, and some bankruptcy courts let you classify student loan debt separately so it can receive more money than other debt.

All payments generally reduce the overall student loan balance.  It is important to make sure the student loan receives a substantial payment each month both to cover the accrued interest and to reduce the principal balance.  Debtors contemplating chapter 13 bankruptcy should consider tightening their household budget in order to make additional payments to the student loans.


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