As opposed to the liquidation of Chapter 7 individual bankruptcy, Chapter 13 is a process of reorganization. Student loans, like other types of debts, are not discharged in a Chapter 13 bankruptcy case. Rather, they are restructured as part of your repayment plan if the court determines that they are eligible.
The myth that student loans cannot be modified in bankruptcy is so pervasive that most debtors do not try to include them. More lawyers are realizing that reducing or modifying student loan debts during bankruptcy is possible and becoming more common.
In Chapter 13 bankruptcy, debtors usually have some steady income that will be used to pay debts according to the repayment plan. An individual’s Chapter 13 repayment plan can include both private and federal loans. Chapter 13 is a good option for people who have fallen behind on payments but earn too much to qualify for Chapter 7. This plan allows you to pay debts over a period of three to five years.
Depending on the details of your case, the Court might modify the terms of your student loan repayment, include the loans in your Chapter 13 repayment plan, or partially discharge them. Your bankruptcy attorney can use a variety of tactics to reduce your student loans and modify your repayment terms.
Showing good faith
Bankruptcy judges like to see that a debtor has made a good faith effort to negotiate and communicate with their loan servicer. Even private lenders will sometimes negotiate flexible repayment plans to lower your monthly bill. Part of making a good faith effort is regular communication, updating your paperwork in a timely matter, and reporting any changes in your circumstances.
The flipside of showing good faith on the part of the borrower is to show a loan servicer has been violating laws regarding debt collection practices. These laws govern specific behavior, such as how often a debt collector can call you.
Attorneys have successfully challenged a loan servicer’s standing to collect a student loan debt. By recognizing that the loan servicer has the burden of proof in securing a judgement, attorneys have begun to challenge lenders to show proof that they actually own the debt they are trying to collect. Without proper documentation or any proof, the loans cannot be enforced.
Another tactic your lawyer can use is challenging the enforceability of a student loan due because it has predatory terms. The Court may adjust the terms of the loan to make them fair to the borrower.
A few lawyers have successfully argued that the “educational benefit” portion of Bankruptcy Code 11 U.S.C. § 523(a)(8) has been interpreted too broadly by almost all federal courts since 1990. If “educational benefit” encompasses any funds that facilitate education in any way, it renders the rest of the statute superfluous.
Many debts do not even meet the threshold of a qualified student loan which exempts it from discharge. These ancillary costs include, for example, prep courses, transportation, computer and internet, and living costs above what is published by the school.
Although many U.S. lawmakers have proposed legislation and signaled their willingness to clarify the bankruptcy code and address the student loan debt crisis, there has not been comprehensive legislation enacted. Without a legislative solution from Congress, lawyers and judges have been forced to navigate a murky legal landscape.
Contact a knowledgeable bankruptcy lawyer in Texas about your student loan debt
To learn more about how filing for bankruptcy could affect your student loans, contact a skilled Texas bankruptcy attorney at Marcos D. Oliva, P.C.