Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “Can I get rid of student loans by declaring bankruptcy?”
Anyone who has been to school recently or thought about going back has encountered the staggering cost of a college degree. Every year colleges and universities across the country raise tuition, making it harder and harder for ordinary Americans to afford a decent education. These increasing costs have led to a boom in student loan debt, a trend that has financially crippled some who cannot afford to make their payments.
Student loan debt is different than almost all other kinds of debt in one important way: it is not dischargeable in most bankruptcies. If a person runs up massive credit card debt, encounters a medical crisis that leads to huge hospital bills or buys a house that he or she can no longer afford, all of these debts can be eliminated in a bankruptcy case. Student loans, however, cannot and will stick around until they are paid in full.
To combat this problem, a recent article discussed a strategy employed by some to avoid making punishing payments on student loan debt. The strategy is known as “perpetual bankruptcy” and happens when a person files for Chapter 13 bankruptcy protection repeatedly.
So why would a person do such a thing? The reason is that when a debtor files for Chapter 13 bankruptcy protection a five-year period begins where all collection activities, including wage garnishments, must be halted. This prohibits creditors, including student loan companies, from harassing you or attempting to seize your assets. That means no bills, letters, garnishments or liens for the duration of your bankruptcy period.
Another reason this strategy has been used by some is because Chapter 13 cases require that the debtor only pay his or her disposable income towards a repayment plan. For those with little disposable income left after paying rent, car payments, food, utilities, insurance, etc., there is little left for student loan companies to take in the way of payments. That means even a tiny amount of money can be enough to keep the student loan companies off of your back for the duration of the Chapter 13.
So how does a Chapter 13 become a perpetual Chapter 13? When a person is released from the Chapter 13 bankruptcy and then turns around and files a brand new Chapter 13 case. This new filing comes with another automatic stay and another five-year period where collectors are not allowed to bother you.
Though this approach is certainly not recommended for most people given the substantial damage it will do to your credit score, some say that it is one way of surviving if you are drowning under a massive amount of student loan debt. Only if lenders have refused to negotiate with you or workout alternate payment arrangements could such a drastic measure make sense.
If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC today at (704) 370-2828. As professionals who are experienced in the bankruptcy arena, our attorneys will provide you with the best advice for your particular situation.