Student Loan Question

[Mixelplick]

Hi all. It is my understanding that a student loan is treated as a general unsecured debt. If that is the case, do they only get a portion of what I will end up paying in my monthly payment, the same as other unsecured creditors? If so, do they not get any additional payments until the BK is discharged? I understand that it will not be discharged, but it is the largest part of my debt. Do I resume normal payments for what is left after the five year window?

[6ftladycop]

Well, it was my understanding that a student loan since it is not dischargeble will resume once bankruptcy is finalized/discharged or closed. Once this happens, I am almost positive that the student loan people knowing that you filed because they will definitely receive a notice of Bankruptcy filing as well, they will probably work out a payment plan with you. I know my student loan company e-mailed me and let me know that as soon as it is discharged, they will send me the paperwork to resume my payments at a reduced amount and they indicated that they will not bother me until then.

[lrprn]

It is my understanding that a student loan is treated as a general unsecured debt. If that is the case, do they only get a portion of what I will end up paying in my monthly payment, the same as other unsecured creditors?

Student loans are the black hole of bankruptcy. Protected by law and not allowed to be discharged in bankruptcy unless very stiff requirements are met, the law does NOT provide any means of paying on them during Ch 13 - a terrible, terrible oversight by our 2005 Congress who passed this awful piece of legislation.

Since student loans are unsecured, most districts believe they cannot be paid by your trustee "inside the plan" for the same reason the trustee can't pay off a favorite unsecured credit card of yours you don't want to give up. The law sees student loans and credit cards as the same. Except credit cards are dischargeable and student loans (except in the rarest of circumstances) are not.

If the amount of your student loan is low enough, if you can put the entire amount in your plan and pay the whole amount off within five years, that might work.

Some progressive local courts are starting to realize that not being able to pay on student loans during Ch 13 sets up filers for failure after discharge because five years of interest piling on top of no payments balloons these loans up horribly. Some are starting to allow student loans to be treated as a "priority" or "special" loan and freeing up enough income to allow filers to at least pay the interest themselves during Ch 13.

I've written and emailed our congressional reps about the blatant unfairness of this situation, and I encourage everyone else here to do the same.

If so, do they not get any additional payments until the BK is discharged?

That's right. The lenders put the student loans into forebearance and smile because the loan interest continues to compound the entire time.

Do I resume normal payments for what is left after the five year window?

Yes, but the payments are going to be significantly higher to pay off the additional interest and still bring the loan down to zero in ten years.

Sorry....wish the news was more positive. Write your representatives and let them know how you are being impacted by this poorly written part of the current bk law. You aren't trying to discharge the loans - just be able to continue to make reasonable payments during your Ch 13.

[woeisme]

confused

I am very confused! My lawyer put the amount of student loan payment into the computer when she was calculating my disposable income, and it was my understanding that I would continue to make payments on it outside of my plan. Are you all saying that the automatic stay applies to the student loan and that money is supposed to be part of our monthly budget, not money we are sending to the student loan company??? We really lucked out with our lawyer knowing the best ways to cover our budget expenses so our montly payment seems do-able even with paying $325 a month to the student loan company, so we're going to keep paying them regardless, I guess I'm just curious if what you are saying is that a stay is in place and we don't have to make this payment??? (This might be important in the future if an emergency comes up and we need to spend the $325 to cover something else, but like I said, I plan to pay it to the student loan company to keep from having a big monster payment after our 5 years is over.) Thanks!

[lrprn]

My guess is that you are in one of those lucky courts where the Ch 13 trustees understand the need to keep paying on these loans during Ch 13 - not just the interest, but on the principal too.

I assume your student loan lender or lenders filed a claim, so ask your lawyer if he/she minds if you contact them to find out the status of your loans and if you can skip a month when necessary without penalty.

[chpxiii]

Yes, but the payments are going to be significantly higher to pay off the additional interest and still bring the loan down to zero in ten years.

This is EXACTLY what I fear when I come out of Chapter 13. It's been 4 years since I've paid on my student loans. *sigh*

[$$only4ever]

We have a Parent/Plus Loan, which Sallie Mae filed a proof of claim on so the trustee sends them a payment every month. In addition, the trustee allowed us to continue making monthly payments outside of plan. According to my calculations, when I am ready to be discharged, this loan will be paid in full.

[mysterie91]

We are in the student loan black hole as well!

The attorney we met with this week said that student loans are added to the amount of unsecured debt. They will be paid the same paltry amount inside the CH 13 as all the other creditors for 5 years. All the while the interest is accruing. At the end of the BK you have a student loan balance due that you must satisfy. You will resume making payments on the loan just like before BK - although the payments will probably be higher.

It seems like this is one area where the courts canno agree. I have read that some think the entire loan must be paid in full during the CH 13 time frame, others seem to say what my attorney said.

[chpxiii]

We have a Parent/Plus Loan, which Sallie Mae filed a proof of claim on so the trustee sends them a payment every month. In addition, the trustee allowed us to continue making monthly payments outside of plan. According to my calculations, when I am ready to be discharged, this loan will be paid in full.

Rock on!! Yay!!!!!