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How Does Filing Bankruptcy Affect School Loans?

It is very, very difficult to discharge school loans by filing bankruptcy. If you file a chapter 7 bankruptcy, then the debt is not discharged. However, if you file chapter 7 bankruptcy and file a lawsuit in the bankruptcy court while you are in bankruptcy, then you can sue the school loan lender and ask the bankruptcy judge to declare that you do not have to pay the loan. However, be advised that this will cost extra in most cases. Also, be advised that, unless you are physically or mentally disabled and have medical evidence to prove it in court in a trial; unless you have tried everything to pay the loan, but things don’t look like they will ever get better so that you can afford to pay something on the school loan debt; and, unless you have tried to pay the loan and obtain help from the school loan lenders deferment system, you will not win. Winning can mean that the debt is discharged, partially forgiven, or is put on a very long payment plan with easy payment terms. It is tough to do this.

Filing chapter 13 bankruptcy treats school loans in a weird, conflicting, and unhelpful way. When you file a chapter 13 bankruptcy you are paying your debts through a chapter 13 bankruptcy payment plan. A school loan is usually an unsecured debt. This means that it has to be paid at the same rate and percentage of payout as your VISA card or doctor bills. In most chapter 13 bankruptcy plans, those creditors are not paid any interest and are not paid 100% of what you owe them. This means that, in many cases, in the plan you will not pay the school loan creditor 100% of what you owe it or late fees or interest. However, you will still owe the balance five years later when the chapter 13 bankruptcy payment plan is over because the discharge order that closes your chapter 13 plan and wipes out the unpaid debt does NOT discharge the unpaid school debt because of the special school loan discharge exception. If this sounds weird to you, it does to me, too, but that is just the way it is. The only hope that you have is to look very closely at what you borrowed, from whom you borrowed it and for what those funds were earmarked. If it was an internal college loan for books or a meal plan, then MAYBE you can discharge some of it.

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  • Can I go to Jail for not Paying my Bills?

    No, not unless you committed a crime in the creation of the debt (for example, fraud). Simply borrowing money and not being able to pay it back is not a crime. Many creditors representatives will tell you lies on the telephone and say that they will have you put in jail. Perhaps they are too ignorant to know they are wrong or that it is illegal for them even to say that. See More Bankruptcy Q&A