A recent story in the Pittsburgh Post-Gazette highlights an increasingly common strategy for dealing with unmanageable student loan debt: Chapter 13 bankruptcy.
If you have student loans, you may already be aware that those debts cannot be discharged under Chapter 7 bankruptcy liquidation except in very limited cases. Under Chapter 13 reorganization, however, debtors agree to make monthly payments that are manageable given their particular financial situation. Creditors in these cases can be forced to accept lower payments than they otherwise would not.
The strategy mainly applies when dealing with private student loans. Private loans usually have higher interest rates than federal loans, and private lenders are usually less accommodating to borrowers who want lower monthly payments that fit their budget.
The Post-Gazette interviewed a man whose monthly student loan payments went from nearly $1,000 to just $200 after he filed Chapter 13. There is one catch, however: Chapter 13 payment plans last no longer than five years, after which normal monthly payments will resume on any unpaid student loan debt. A debtor who then still faces unaffordable debt payments may subsequently file again for Chapter 13 protection, but that entails another round of fees and court proceedings.
If you cannot afford your student loan payments, speak with an experienced bankruptcy attorney about your options.