Bankruptcy and Student Loans

Student loans are generally non-dischargeable in bankruptcy.  The single exception is when the debtor who owes the student loan is under extreme hardship normally due to a physical problem.  There are certain minimal exceptions to the dischargeability of student loans in certain courts.  Some courts have held that the student loans can be reduced based upon the income of the debtor. 

Student loans are extremely difficult to deal with in Chapter 13 because Chapter 13 requires that the student loan be paid on par with all the unsecured creditors.  At the same time, the student loan is not dischargeable in Chapter 13.  The result is that the debtor could spend five years paying his creditors only to find that the student loan was larger than it was when he started because the interest had been running during those past five years.  There are ways around this in some courts but a Chapter 13 bankruptcy will not discharge a student loan.

Comment: despite promises by both parties, Congress has done nothing but harm to students who are caught in the student loan trap. Congress treats students worse that perhaps any country in the world. It has effectively imposed a lifetime of impossible debt on many students.

The best advice is this, "Do what you have to do to pay it off as early as possible to stop the interest."

Charles Chesnutt