Student Loan Debt Reorganization

File Chapter 13 Bankruptcy to Consolidate Your Student Loan Debt

Graduating from college or graduate school is a major accomplishment. A degree has the potential to open many new doors. However, you may have student loans hanging over your head for many years in your future. In an anemic economy, it may be extremely difficult to make your monthly payments. While student loan debt is not dischargeable through a bankruptcy filing, except under certain circumstances, you may be able to reorganize or restructure your student loan debt under Chapter 13 of the U.S. Bankruptcy Code.

How Does Student Loan Consolidation Work?

Bankruptcy Piggy BankYou can think of a Chapter 13 reorganization as a consolidation loan. All of your outstanding debts, including your student loans, are consolidated into one monthly payment for a period of 3 to 5 years. During the 3 to 5 year period, you will make one single payment to your bankruptcy trustee who will then distribute the funds to all creditors according to the plan. The Bankruptcy Court supervises the entire plan for the entire period. If you have other debts, you may even be able to suspend payment of your student loans for the 3 to 5 year period; however, interest will still accrue and you will be responsible for higher payments after bankruptcy. This may be suitable for you, as it will give you a chance to pay back other debts, such as credit cards and medical bills, in those years, leaving you in a better position to pay down student loan debt after those are taken care of.

What Happens After the 3-5 Year Plan Has Ended?

Student loan debt is treated as a non-priority, unsecured debt. This is very similar to credit card debt. Under Chapter 13, your bankruptcy attorney will work to create a payment plan of between 3 and 5 years that will allow you to pay back your debts in a more manageable way based on your income and other important life expenses. It is important to remember that after the 3-5 year plan, the debt is not completely forgiven or discharged. Rather, it becomes more manageable and you will hopefully be in a better position to pay the loan debt back after the plan period has ended. The Chapter 13 filing may also act to cure any defaults in payment that will allow you to become current on your student loans.

Automatic Stay Will Help Stop Harassing Phone Calls

The automatic stay affiliated with the filing of any bankruptcy petition also has many advantages for student loan debt. As soon as a Chapter 13 petition is filed in Bankruptcy Court, your student loan lender must stop calling and harassing you for payment. Instead, they will communicate with you through the Court and your assigned bankruptcy trustee for the length of the plan. The automatic stay also sends a message to creditors, including student loan lenders, that you are in financial distress.

Call a NJ Bankruptcy Lawyer to Reorganize Student Loan Debt

The reorganization of student loan debt through a Chapter 13 bankruptcy filing is very complex. Calling an experienced bankruptcy attorney will help you determine whether or not bankruptcy is the right option for you. An experienced New Jersey bankruptcy lawyer may also be able to provide you with alternative ways to pay off your student loan debt without filing for bankruptcy. With student loan debt growing higher than credit card debt these days, more bankruptcy attorneys are getting involved in the process. Villani & DeLuca, P.C. attorney Robert H. Johnson already has the experience necessary to help you. Call 732-965-3390 today for a free initial phone consultation.