The point is repeated endlessly to those considering a Las Vegas bankruptcy: student debt is not dischargeable. It’s a real blow. People’s student debt loads can run very high, and it’s astonishing that lenders, especially including the federal government, will allow people to borrow so much money. That doesn’t mean bankruptcy will do no good for student debtors. Filing a Las Vegas bankruptcy gives people breathing room and discharges other debts like credit card debt. What many people do not realize, however, is that filing a Chapter 13 bankruptcy might do them more good.
Chapter 13 is the “reorganization” chapter, which means the petitioner makes payments to the bankruptcy Trustee over a 3-5-year period, and the Trustee then distributes the payments to the creditors according to their priority in the bankruptcy code. Secured debts and “priority” unsecured debts (missed child support payments, tax debts, and others) are paid first, and anything left over goes to unsecured creditors (e.g. credit card debt and student debt). These debts are then discharged. Student loans are not secured, not prioritized, and nondischargeable, meaning the interest on them will grow during the payment period and they’ll be intact after exiting Chapter 13. Nevertheless, there are seven reasons to consider using Chapter 13 to handle student loan debt:
(1) As with Chapter 7, the debtor still doesn’t owe anything to unsecured creditors, meaning there’s more money at the end of the month to pay the student loans.
(2) Filing Chapter 13 also benefits people because they can strip second mortgages on homes and cram down payments on car loans.
(3) If private student loan lenders refuse to cooperate with debtors, filing Chapter 13 gives them time, which can be beneficial for those who are in school and about to enter lucrative fields, those who might be able to find a new job in the future, those who might be waiting on an inheritance, and those who need time to reduce their living expenses and save up money through other means.
(4) Chapter 13 affords debtors a longer automatic stay, so those whose loans are near default or are in default will be free of the hassle from creditors.
(5) Because the payments are distributed to the unsecured creditors at the end of the repayment plan, if the other creditors receive anything, the student lenders will as well. This can offset accumulated interest and possibly dent the loan’s principal.
(6) After completing a Chapter 7 bankruptcy, people cannot file in any chapter for four years and Chapter 7 for another eight. Chapter 13 has no time bar, so debtors can remain in Chapter 13 continuously. This can allow people to make their payments based on their incomes and not on what creditors want them to pay. It’s possible to pay down the entire loan while in Chapter 13. While this will destroy debtors’ creditworthiness, it will keep the creditors from engaging in collection efforts.
(7) Sometimes creditors will not object to the dischargeability of a student loan in Chapter 13. If this is the case, they will accept their payout under the repayment plan and you might be debt free.
Student loans are a severe hardship for debtors, but consulting with a Las Vegas bankruptcy lawyer might help make a difference.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation by calling us at 702-880-5554.