Can I put my student loans in my bankruptcy filing?

Chapter 7 bankruptcy, known as the fresh start bankruptcy, is a way to get out of debt.  However, student loans are not eliminated under a Chapter 7 except in extreme hardship cases.  In my experience, an extreme hardship case is almost impossible to find.  You must be in a position where you can no longer make the payment, you no longer have the ability to make the payment and it is causing an extreme hardship on your ability to survive.  In all the cases that I have seen in the 21 years of practice, there has not been one that has met this standard.  If, in fact, the client does not have the ability to repay a student loan based on their inability to work, then basically the collection proof nature of the debt basically states that the student loan is never going to be repaid despite the fact that it is not eliminated in Chapter 7.

Now, in Chapter 13, you can’t put student loans in the plan and reorganize it to a certain extent.  In some cases, we have paid 10% on the dollar on student loans during the course of a Chapter 13 which could be anywhere from 3 to 5 years,  Knowing that the remaining balance is going to be due and owing with interest after the Chapter 13 is over.  The benefit of putting a student loan in a Chapter 13 is that you restrict the student loan company from collection while you are in your 3 to 5 year plan.  You can often pay back less than what’s owed during that time.  Knowing that you are going to get a little bit of a breather and then at the end of your Chapter 13 plan, you are going to owe the balance.  While it might turn out that at the end of your Chapter 13, you are in a greater position to be able to make payments to the student loan whereas before, you were strapped.  So yes, you can eliminate or curb the student loan payment through the Chapter 13, however, you cannot eliminate a student loan in a Chapter 7.


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