Bankruptcy and student loans
Most people understand today that bankruptcy does not, in most cases, discharge student loan debt.
So, how does bankruptcy help with student loan debt if the student loans are not wiped out?
Debt sequencing with chapter 13 bankruptcy.
Chapter 13 bankruptcy allows you to wipe out all of your dischargeable debt and pay for your automobiles and do other things that are necessary while putting your student loans, effectively, on hold.
When you file a chapter 13 bankruptcy, the student loans are automatically put it into a status of administrative forbearance.
While in Chapter 13 bankruptcy, student loans are treated like any other unsecured debt, like a credit card or medical bill.
In most cases, unsecured debts in Chapter 13 only receive a few pennies on the dollar.
Your student loans also get the “pennies on the dollar” but the difference at the end of the case is that the student loans are not discharged.
However, by putting the student loans on hold while you’re in the chapter 13 bankruptcy, and using the chapter 13 to pay off your car and wipe out all the other debts, you then set yourself up for success at the end of the chapter 13.
At the end of the chapter 13 all the other debt is gone – leaving you with only the student loan debt pay. Your car is paid off, your other debts are wiped out, and now you can begin to work on paying your student loan debts.