Student loans are generally not dischargeable in bankruptcy. However, there are a number of strategies to make your student loan debt more manageable. The purpose of this article is to give you a basic overview of your options with respect to student loan debt.
There are two types of student loans: government loans and private loans. With respect to government loans, you may have available a number of deferments and forbearances. With a deferment, some of the student loans do not charge interest during the period of the deferment. Conversely, with forbearances the interest on the loans always continues to run during the period of the forbearance.
If you have used up all your deferments and forbearances on a government student loan, an income-driven repayment plan may be available to you. In the income-driven repayments plans, you pay what you can afford as determined by various formulas. Some people pay as little as $0.00 per month, subject to an annual review of their finances.
Even if you do not qualify for any of the income-driven repayment plans, the filing of a bankruptcy creates an automatic stay for the duration of the bankruptcy case. An automatic stay means that your creditors can’t call you, write you, sue you, or garnish you. Because of this, the automatic stay acts as a forbearance of sorts. This is particularly significant in the filing of a Chapter 13 bankruptcy which runs for three to five years. For an explanation of Chapter 13 Bankruptcy, see my article entitled, “The difference Between Chapter 7 and Chapter 13 Bankruptcy, and Which Chapter is Right For You.”
I had a client whose only debt was a private student loan, but the student loan company demanded monthly payments which were larger than she could afford. I used a Chapter 13 bankruptcy to pay her student loan off in full within five years, but at a monthly amount which was less than the student loan company was demanding.
The above information is a general overview and is not intended to be used as legal advice. If you are considering filing for bankruptcy, the best thing to do is call our office at 248-557-3645 and schedule a free consultation so you can receive advice which is tailored to your specific circumstances.
By: Michael Benkstein, Esq.
Managing Attorney, Bankruptcy Department
The Law Offices of Joumana Kayrouz, PLLC