Can I Use Bankruptcy to Pay off My Student Loans?

If you have done much research into student loans and bankruptcy, you have probably leaned the disappointing news that student loans are almost never eliminated in bankruptcy. But is there any way bankruptcy can at least help you with your student loan debt? It turns out that bankruptcy can be an effective tool for helping you pay off your student loans.

Don’t Procrastinate

Anyone with student loans knows at least at little about loan forbearance and deferment. You might even be in the middle of a deferment or a forbearance as you read this.

Both of these options have their appeal. Student loan payments can be very difficult to afford. Especially for recent graduates looking for a job, or those who have had a hard time finding work in their field. If you can’t afford the payments, either option is better than going broke.

There are two problems with forbearance and deferment. First, they prolong the inevitable. You will still have to pay the full amount, just at some later date. Second, each of these includes subtle interest charges that accrue over time. Thanks to this interest, when you finally reach the point where you start repaying your student loans, you will owe more money than you probably expected.

How Bankruptcy Can Help?

If you qualify for Chapter 7 bankruptcy, you will quickly be eliminating a large chunk of your debt. Credit card debt, medical debt, and even mortgage debt on a foreclosed home.

Unfortunately, it will probably not eliminate your student loan debt. However, with all of your other debts out of the way, it is much easier to begin making payments on your student loans without having to forebear or defer them. This saves money on interest charges, and allows you to get your loans paid off on time (or possibly early), allowing you to move on with your life, free from the burden of your student loans.

If you are filing for Chapter 13 bankruptcy, you will have a payment plan controlled by the court for 3 to 5 years. Through this plan you will pay back only a portion of the debt you owe to creditors. The rest of your debt will be eliminated by the bankruptcy.

Your student loan debt can be included in your Chapter 13 payment. So while you are working to pay a manageable, lump-sum payment to all of your creditors for up to 5 years, you are gradually chipping away at your student loan payment. You will only pay an affordable percentage of what is owed on your loans throughout the duration of your bankruptcy.

Even though your student loan isn’t completely paid off by the end of your bankruptcy, you will be in good financial shape when the bankruptcy is over. Much of your other debts will already be eliminated, and thanks to 5 years of payments, there will be less of your student loans left to pay off.