Chapter 13 Bankruptcy and Student Loans

With the cost of education shooting up, it has become a necessity for many to seek student loans to pursue higher education. While some lucky ones manage to grab a highly paid job right after education, many others may not be so lucky with regard to their future. The education loan will eat a big chunk of their hard-earned take-home income, resulting in a situation that calls for filing for bankruptcy under Chapter 13. Chapter 13 bankruptcy creates a shield from any settlement efforts made by the creditor.

To file for relief under Chapter 13 bankruptcy for the student loans availed, the debtor has to prove that his debts do not fall beyond the limits stipulated. A debtor who enjoys the presence of a stable income, whose secured debt is not more than $1,010,650 and unsecured does not exceed $336,900, can file for bankruptcy. He also has to provide proof of the fact that the income generated from various sources is not sufficient to make the repayment. The “undue hardship” suffered by him has to be evidenced through the Brunner test. Through this test, the debtor availing financial reorganization reflects the fact that the high amount of debt causes undue pressure to maintain the minimal standard of living. If the court is convinced of the debtors conscious effort to repay the debt, and his inability to meet the amount required through the adversary proceeding filed by him, it will provide relief under Chapter 13. When the petition is filed before the Court, no action can be initiated by the creditors.

The new financial plan has to be presented taking into account the various assets and liabilities. The Court on its approval will propose a repayment plan that extends between three to five years depending on the median income as stipulated by the various states.