Student Loan Payments During a Chapter 13 Bankruptcy

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A Chapter 13 Bankruptcy Schedules Student Loan Payments

A student loan is exempt from bankruptcy discharge, regardless of the type, unless you can prove undue hardship, and undue hardship can often be very hard to prove. So, what happens to a student loan payment in a Chapter 13 bankruptcy filing? How is it handled during the payment plan of the bankruptcy?

A Chapter 13 bankruptcy, a wager earner’s plan, is completed when a filer successfully makes payments over 3 or 5 years with disposable monthly income determined by bankruptcy law and approved by a bankruptcy court. The bankruptcy court trustee administers the approved plan by paying unsecured debt with the disposable income.

Normally, a student loan payment is a scheduled part of the plan in a Chapter 13 bankruptcy if the loan payments are due. A student loan is treated like any other unsecured debt in a Chapter 13 bankruptcy, except it is exempted from discharge. Depending on the bankruptcy court, there can be extenuating circumstances that allow a filer to make payments of a student loan outside the payment plan.

Three Different Ways to Make Student Loan Payments Outside a Plan

Here are three ways you can potentially make payments outside of a Chapter 13 bankruptcy if the bankruptcy court permits:

  1. If you are in a situation where you have little or no disposable income, according to US Bankruptcy Code 1322(b)(1), it is possible to designate your student loan as a different class, then place a line item in your plan to pay the student loan outside the plan. This would only work if the rest of the unsecured creditors received no dividend from the disposable income.
  2. US Bankruptcy Code 1322(b)(5) leads one to believe there is a possibility you can make student loan payments outside a Chapter 13 bankruptcy plan if you are in default of your student loans. You will be allowed to cure the default of the student loan, and then make payments on the student loan as long as the length of time for repayment of loan is longer than the maximum time of the 5 years in a Chapter 13 bankruptcy.
  3. A Chapter 13 bankruptcy filer may choose to spend less than the budgeted amounts for living expenses in the plan and pay the student loan outside the plan with the difference in savings. In this case, you are paying the student loan with your own personal funds.

Normal and Mitigating Circumstances Affecting Student Loan Payments 

In any case of a payment on a student loan when the filing debtor of a Chapter 13 bankruptcy is in a 100 percent payback plan, the filing debtor may make payments outside the plan with the permission of the bankruptcy court, but in that case, what is the need?

Like in most aspects of the law, there are extenuating circumstances that may occur which will allow a debtor to make payments to their student loan outside of their payment plan in a Chapter 13 bankruptcy. Each bankruptcy court will have to decide whether or not those mitigating circumstances deserve enough weight to allow a student loan special consideration.

One such mitigating circumstance has already been tried in courts of law. When a filing debtor’s wage is threatened by the loss of a professional license, courts are allowing the debtor to make special provisions for the payment of student loans.


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