Is Chapter 13 a good option for dealing with student loan debt?

One of the largest sources of debt for many Americans is student loans. Many are still paying off loans decades after they finished college or graduate school.

As you’ve likely read or been told, it’s very difficult to discharge student loan debt in a Chapter 7 bankruptcy. However, you can discharge other debts, which can potentially help you manage your student loan debts better.

What if you’re able to qualify for Chapter 13 bankruptcy and you prefer that option? In Chapter 13, you reorganize your debts and create a repayment plan for them. So what happens to your student loan debt?

As soon as you file your petition for Chapter 13, you receive an automatic stay that stops most creditors from taking collection actions. This includes student loan servicers. This stay continues throughout the length of your repayment period, which is typically three to five years.

Your repayment plan will include payments on your student loans. How that debt fits in with your other debts will be determined as you work out your plan with the court. Because student loans are considered “nonpriority unsecured debt,” you may not have to pay the full amount. You may need to put the money toward what are considered higher-priority debts.

It’s important to remember that filing for Chapter 13 doesn’t stop interest from accruing on your student loan debt. Further, you’ll still be responsible for paying whatever portion of your debt remains after you’ve completed your bankruptcy repayment plan.

If student loan debt comprises a significant portion of your overall debt and you’re considering bankruptcy, it’s essential to discuss your overall financial picture with an experienced Long Island bankruptcy attorney to determine your best option for a fresh start.