Many people wonder about how a potential bankruptcy will affect their student loan debt. The unfortunate news is that student loan debt is notoriously difficult to discharge in bankruptcy without demonstrating “undue hardship,” a vague term that is very difficult to prove to the right people. However, there are a few options for managing student loan debt in Chapter 13 bankruptcy that, while not forgiving the debt, can help you manage your payments while you work your way out of your other debts.
Student Loans in Chapter 13
In a Chapter 13 bankruptcy, your student loan debt can be packaged in with other debts as part of the Chapter 13 repayment plan. At the end of the repayment period – 3 to 5 years for a Chapter 13 case – remaining unsecured debts will be discharged, including credit card debts, medical debts, and many others. Student loan debt will not be discharged, and your lending institution will still have the legal right to demand you continue repayment on the loan. However, consider that you will just have spent 3 to 5 years making regular payments on the loan, and that now you are clear of a great deal of your other significant debt; your debt-to-income ratio should be higher than ever, and you can now make your student loan payments with no problem. Hence even though student loan debt is not dischargeable in Chapter 13 bankruptcy, it may be worth exploring the bankruptcy option in order to make paying the debt down in the future more feasible.