Limiting Student Loan Payments in Chapter 13

As previously discussed in my Blog at bravermanlaw.com in certain hardship cases student loans can be eliminated. However, what about those circumstances where the student loan cannot be eliminated. Is there anything that can be done in bankruptcy that can help with limiting the student loan payments? The answer is yes. A Chapter 13 can be used to provide some relief. Chapter 13 is a form of bankruptcy where payments are made over a period of 3 to 5 years. It is often used to pay mortgage arrears over 5 years to allow the borrower to save their home. However, what about a situation where someone has unsecured debt, such as $20,000.00 in credit cards, and $80,000.00 in student loans, the student loan lender is demanding $600.00 per month and your salary cannot yet support that kind of payment. One option would be to file chapter 7 personal bankruptcy which would eliminate the credit cards but not help with the student loan payment. Another option is to file Chapter 13. Lets say you live in Northeast Philadelphia, your budget, when you don’t count the student loans or the credit cards, would allow you to pay $200 per month for 5 years. In the Chapter 13, you stop paying all of the creditors and you pay $200.00 per month to the trustee which would total $12,000.00. After certain trustee deductions, your creditors, totaling $100,000.00 ($20,000.00 credit cards and $80,000.00 student loans) would share about $10,000 or roughly 10% of their claim. At the end of 5 years, the other 90% owed to the credit cards would be eliminated. As for the student loan, once the bankruptcy is over, you would then be obligated to continue making payments on the student loan. However, you will have made a manageable payment for 5 years with the hope that you are now in a better position to pay the student loan.