Student Loans and Chapter 13 Bankruptcy

With the cost of higher education making a steep climb, the students seek education loans to assist them in tiding over the situation. Some lucky ones will end up earning more than what is due to their borrowers, whereas others may not end up with highly paid jobs that leave a gaping hole in their take-home income. When overwhelmed by the student loans, they may be forced to seek a protection under Chapter 13 of the U.S. Bankruptcy Code. Filing for bankruptcy under Chapter 13 brings about an automatic stay preventing any forms of creditor action against the debtor. The debtor is presented with the option of reorganization under the eyes of the federal bankruptcy court. As a defaulter you are to file a petition, called adversary proceeding, to evaluate your state of financial affair. Under Chapter 13, the Court may propose a repayment plan by consolidating the various creditors over the next three to five years. Where your secured debt is not more than $1,010,650 and unsecured does not exceed $336,900, and if you enjoy stable and disposable income, then you can file for Chapter 13. But, where the student proves that the payment of the loan causes “undue hardship” on him as well as his dependents, then, the student loan can be discharged. To prove the “undue hardship” the Court may place the subject under the Brunner test that requires him to prove his inability to maintain “minimal” standard of living if he is to repay the loan that is likely to persist over the loan term, in spite of the debtor’s conscious effort to make the repayment. But, any step taken by you has to be evaluated thoroughly as bankruptcy gets reflected on your credit rating for over ten years. Moreover, with the costs like collection fees of 25 percent and collection agency "commission" fees of 28 percent on the principal, interest and penalties due from you along with other charges eating up a greater portion of your income, consult a lawyer before filing Chapter 13.