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What happens to student loan debt in Chapter 13 bankruptcy?

Many people choose Chapter 13 bankruptcy over Chapter 7. Chapter 13 has a number of advantages over Chapter 7, including the ability to avoid foreclosure, a shorter period of time that the bankruptcy appears on credit reports and the ability to potentially lower payments on debts. Further, some people have to choose the Chapter 13 option over Chapter 7 because their income is too high to qualify for Chapter 7.

For many people, a significant source of their debt is student loans. So what happens to your student loan debt if you file for Chapter 13 bankruptcy? That’s ultimately up to the bankruptcy court that’s handling your case. However, for student loan debt to be discharged, people have to show that not discharging it would cause them undue hardship. Courts look at factors such as a person’s income and assets, any permanent disabilities that might prevent them from being able to earn enough to repay the debt and whether or not they’ve made a good faith effort to make their student loan payments in the past.

Since Chapter 13 bankruptcy involves a reorganization of debt and the development of a repayment plan for all of a person’s debts, the student loan payments would be part of the plan for anyone not able to discharge the debt due to undue hardship.

If you are considering Chapter 13 bankruptcy and have student loan debt, it’s essential to discuss that debt, along with all of your other credit obligations, with your New York bankruptcy attorney. He or she can offer guidance to help you make it through the process and get your debt under control.

Source: FindLaw, “Chapter 13 Bankruptcy Rules FAQ,” accessed July 20, 2016

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