Most people are aware that discharging student loans in bankruptcy case is difficult, so it leaves them wondering what actually happens to these loans after they file their case. The answer depends upon your individual circumstances, what type of bankruptcy you file, and the type of student loan you have.
If you have a federal student loan, all collection activity of it must cease. In other words, you will not receive monthly statements, collection calls or any other reminders that your payment is due. This means that in a Chapter 7 filing, you will likely get a three to five month reprieve, while a Chapter 13 filing or an individual Chapter 11 filing could provide you up to five years of not making payments. Additionally, in a Chapter 13 case, any co-signors on your student loan will be protected by the co-debtor stay, which prohibits the lender from collecting from the co-signor while your Chapter 13 filing is pending.
The downside is that interest continues to accrue during the term of your bankruptcy, which increases the amount you have to repay at the conclusion of your case. Additionally, if you have been rehabilitating your default of a federal loan, you will have to renew your efforts at the close of your bankruptcy.
If you have a private student loan, your promissory note may contain a provision that lists filing bankruptcy as a default on the loan. For many individuals, their student loan was already in default before the filing so it does not impact them. However, if your loan was not in default and you have a co-signor, your bankruptcy causing the loan to be in default can negatively impact your co-signor.
Please keep in mind that every matter is different. If you have questions about your student loan debt or you are considering filing for bankruptcy protection, and you would like to schedule a no-cost consultation to discuss your options, please contact our office by completing the form on this website or calling us at (954) 932-5377.