Treatment of Student Loans in a Chapter 13 Plan
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Generally, student loans are not subject to discharge in bankruptcy unless the debtor can meet the burden of establishing an undue hardship. In other words, you'll still be required to pay your student loans even if you received a discharge of your debts in bankruptcy court. In this article, we examine how student loans are treated in a Chapter 13 plan. Read more great facts on federal student loan forgiveness, click here.
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Treatment of Student Loans in Chapter 13 Plan
The treatment of student loans in a Chapter 13 case can vary wildly depending on the jurisdiction you are in. If seeking relief from student loans is one of your primary goals in filing bankruptcy, you should speak to a qualified bankruptcy attorney regarding their treatment under a Chapter 13 bankruptcy plan.
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A Chapter 13 Plan is where a debtor establishes a payment plan to pay creditors which the Court must approve. Certain long-term debts are paid outside of the plan such as mortgage payments and car loans, while arrears on secured debts and unsecured debts are paid under the Chapter 13 plan. For more useful reference regarding public service loan forgiveness, have a peek here.
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A Chapter 13 plan could propose student loan payments inside or outside of the plan.
It's important to discuss with your bankruptcy attorney whether you can pay your student loans inside or outside of a plan. The attorney will advise you on the pros and cons of both of the options.
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Whether Student Loan Payments Should Be Paid Inside or Outside of the Plan
If student loan payments are paid outside of the plan, then unsecured creditors may file objections based on being treated unfairly. The general rule in bankruptcy is that creditors of the same class must be treated the same. In other words, same-class creditors cannot be treated differently.
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Since paying student loans outside of the plan would essentially lower the Chapter 13 plan payment that would otherwise be provided for the benefit of other unsecured creditors, unsecured creditors may be able to argue that they're being prejudiced by the plan and treated unfairly.
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The alternative is to make student loan payments within the plan, which would result in a higher return to the other unsecured creditors. If student loans are paid inside the plan, student loans would be paid pro-rata with other unsecured creditors. The trend in most jurisdictions is to not allow the payment of student loans outside of the Chapter 13 plan.
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The above is an overview of how student loan is treated under chapter 13 or bankruptcy laws of the country. Please view this site http://classroom.synonym.com/student-loan-forgiveness-4695399.html for further details.