You have probably heard that it is extremely difficult to discharge student loans in Chapter 7 and Chapter 13 bankruptcy filings. So, what happens to your student loan when you file a personal bankruptcy? The answer varies depending on your unique situation, the kind of bankruptcy you file, and the type of student loans you have taken out.
Federal Student Loans
When you file bankruptcy, collection activity on your federal student loans must stop. This means that you will not be sent monthly statements, receive collection telephone calls or any other notices that your payment is due. As a result, in a Chapter 7, you are likely to obtain a four to six month reprieve, but in a Chapter 13 you can obtain up to five years of not making payments on your student loans. It is also important to remember that your co-signors are protected from collection activity by the co-debtor stay while your Chapter 13 case is pending.
It is important to remember, however, that interest on your federal student loans will continue to accrue while you are in bankruptcy, leaving you with a larger amount you have to repay when you emerge from bankruptcy. Also, if you have been working to rehabilitate a defaulted federal loan, you must begin your efforts again at the end of your case.
Private Student Loans
Your private student loan is governed by the promissory note you signed in favor of your lender. Many of these types of contracts contain a provision that filing for bankruptcy protection is considered a default on the loan. However, for many student loan borrowers, their loan was already in default status before filing their Chapter 7 or Chapter 13 case. If your loan is not in default prior to your bankruptcy and you have a co-signor, your filing causing the loan to go into default status could negatively impact your co-signor.
If you have student loans and you are considering filing a bankruptcy case, we can help. We are bankruptcy lawyers who know how to make a difference in your financial situation. We have experience you can rely on and we care about your results. Contact our New Jersey law firm online by filling out the form or by calling 973-323-2953 to schedule a free initial consultation with an attorney at Levitt & Slafkes, P.C..