What Happens To A Student Loan In Bankruptcy?
By Andy Miofsky, Illinois Bankruptcy Attorney on Jan 14, 2009 in Benefits of Bankruptcy
Student loan debt will not be discharged in most cases, and the loan will continue to incur interest during bankruptcy.
If you are in a chapter 13, your plan will generally provide that student loan debt receives the same per cent dividend as other unsecured debt. While some districts may permit you to separately classify the student loan to pay it before unsecured debt, this is a minority position. With a zero per cent plan you will not pay any money toward the student loan from your bankruptcy case.
I warn my bankruptcy clients to find money in their budget to pay directly on the student loan or they will find the debt is larger after bankruptcy than it was when they filed the case.
In order to obtain a discharge of the student loan one has to prove a hardship under the Bruner test. You can find information about this process in an earlier post “Question: Can I Discharge My Student Loan” on the Bankruptcy Law Network.
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