Unlike chapter 7 which is a liquidation bankruptcy, chapter 13 involves the reorganization of debts. Student loans are priority debts that cannot be discharged during any bankruptcy chapter unless you can prove hardship. In the case of chapter 13, you can include them with the court’s permission in your repayment plan. Surprisingly, say Dallas based bankruptcy law firm Recovery Law Group many people are unaware that student loans cannot be modified, hence they do not include them. However, these debts can be reduced as well as modified during bankruptcy.
Chapter 13 bankruptcy involves a repayment plan which can include both federal and private loans. Over a period of 3-5 years, you can repay your debts using your disposable income. Any unsecured debts which remain are discharged at the end of the bankruptcy. This is the best option for people who earn more as a result of which cannot qualify for chapter 7 bankruptcy. Since every case is unique, depending on your student loan and your case details, the loan could be included, modified or partially discharged by the court. A bankruptcy attorney can help you either reduce the student loan or modify the same. If you need an experienced bankruptcy attorney you can call 888-297-6023.
Important factors which can help in case of student loan debt discharge or modification
- Good faith
Efforts made by the debtor to negotiate with the loan servicer in good faith make an impression on the bankruptcy judge. With good communication, you can negotiate flexible payment plans with private lenders too. Good communication skills are important for this. You need to report any change in circumstances as well as update paperwork on time to show your commitment towards repaying your debt. Additionally, if the loan servicer has been violating any debt collection laws, you can report it too.
- Standing issues
The loan servicer needs to demonstrate the burden of proof to secure the judgment. This point has been successfully used by many bankruptcy attorneys to ask lenders to prove that they own the debt which they are trying to collect from the debtor. If they lack proper documentation for the proof, the loan cannot be enforced.
- Unfair terms
The student loan has predatory terms that can be challenged by bankruptcy lawyers. To make the terms fairer for the borrower, the court might adjust the terms.
Bankruptcy Code
The Bankruptcy Code 11 U.S.C. § 523 (a) (8) is loosely interpreted by federal courts. Most debts do not qualify as student loans and therefore can be exempted from discharge. These include transportation, prep course, computer, internet and living costs during schooling. Bankruptcy code is being amended by the congress to address the student loan debt crisis.