Chapter 13 bankruptcy is a "debt consolidation" bankruptcy, which restructures all of your debts in a way that makes them more manageable to pay. But what about student loans? You may have heard that student loans can't be discharged through bankruptcy, but that doesn't mean that bankruptcy can't help.
What Happens During Bankruptcy?
During the process of bankruptcy, all your debts are considered to be "on hold." Until the bankruptcy is completed, creditors cannot continue contacting you for the debt. This applies to student loans, too, whether they're private or federal. It's not permanent, but it can give you some time to take stock.
Once the bankruptcy is in process, you will often be able to reduce the payments of your student loans. However, they still do need to be paid. Generally they will be reduced by signing you up for a Pay As You Earn (PAYE) or Income Based Repayment (IBR) plan. A PAYE or IBR plan is going to be based on your income.
After the bankruptcy is completed, you will resume payment of these loans, but under this modified basis. If you've applied for a PAYE or IBR repayment, you should also remember that you need to renew it every year.
Can You Get Student Loans Discharged?
It is possible to get your student loans discharged during bankruptcy, but it's difficult. In order to do so, you need to be able to show that you would be below the poverty level if you were to pay even the minimum amount on your student loans. Moreover, you need to be able to show that this is something that is likely to continue: that you're likely to be in this situation for the life of the loan.
That being said, many people do get their loans discharged successfully this way. Usually those who get their student loans discharged are unable to meet the proper earning potential (such as being disabled in a way that interferes with work) or have loans so significant they would never be able to repay them (such as hundreds of thousands of dollars worth of loans).
Your bankruptcy attorney or bankruptcy trustee will be able to give you more information about your student loans and your debt restructuring. However, if your student loans are the major issue holding you back, don't assume that you can't do anything about them. Even a debt restructuring may be able to get your monthly debt payments down to a more manageable level.