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Student Loans and Chapter 13 Bankruptcy

In Myrtle Beach, South Carolina most people who for file for bankruptcy are solid, hardworking folks who have encountered tough financial times through no fault of their own. Chapter 13 is a tool they can utilize to regain their financial footing and keep aggressive creditors at bay.

Some debts are dischargeable under Chapter 13 bankruptcy, such as credit cards, medical bills, and personal loans. These "unsecured" debts are not backed up by specific property as collateral (e.g., house or car). One unsecured debt that Chapter 13 treats differently, however, is student loans.

A discharge of student loans is difficult to achieve without an extreme circumstance, such as sever disability. Although student loans will still need to be paid off, filing for Chapter 13 bankruptcy can delay or reduce loan payments throughout the length of your bankruptcy case (often 3-5 years).

With chapter 13, your disposable income each month is paid to your Chapter 13 trustee. Disposable income is the difference between your income and your "reasonable and necessary" expenses as determined by your Chapter 13 plan. Your trustee divvies up your disposable income among your unsecured creditors. If you have no disposable income, creditors get nothing.

At the end of the Chapter 13 process, most remaining unsecured loans will be discharged. Student loans will still need to be paid in full, however, including accrued interest, under a new payment plan coordinated with your student-loan lender. Hopefully, the 3-5 year window afforded by Chapter 13 will have shored up your financial situation, enabling you to handle future payments.


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