It’s frequently, and unfortunately necessary, to point out that student debt is nearly immune from discharge in Chapter 7 bankruptcy. This causes enormous problems for debtors and can stymie those filing Las Vegas bankruptcy. As a result, many student debtors find themselves considering filing in Chapter 13 when they otherwise would’ve filed in Chapter 7. Chapter 13 allows petitioners to arrange 3-5 year payment plans for their debts. Often, after the plans conclude, the debts are discharged. Additionally, the debtor benefits from the automatic stay for the duration from the plan.
For student loans, though, things work differently. True, in some instances, creditors will consent to discharging the debt, and there is the option of filing successive Chapter 13 bankruptcies if the debt is permanently unmanageable, but for the most part, the creditors will resist your attempts to avoid full payment. The question, though, is what happens to interest that accrues onto the sudent debt subject to the Chapter 13 plan.
In one case, In re Girard (243 B.R. 894), the debtor managed to pay off all the principal on the student loan, but objected to the interest that accumulated onto the loan during the Chapter 13 plan. The bankruptcy court held that because the underlying student loan was itself nondischargeable, the interest that accumulated onto it was also nondischargeable. Effectively, this means that neither the Chapter 13 repayment plan nor even the automatic stay will prevent interest from accumulating on student loan debt.
The obvious consequence of this ruling is that with a high interest rate, bankruptcy alone won’t help, and recapitalizing interest does not violate the automatic stay. If you have student loan debt, though, consulting with a Las Vegas bankruptcy lawyer can still help. A Chapter 7 bankruptcy can allow you to discharge other debts while Chapter 13 can reduce your monthly payments to a more manageable level based on your current income.
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. Call us at 702-880-5554 to set up your free consultation.