Chicago Bankruptcy Attorney and Student Loans


Your Chicago bankruptcy attorney sees people of all ages who are having financial problems and coming to him for bankruptcy assistance. One common problem that is noticed among the many people set is their inability to repay student loans. The problem is that student loans are very difficult to get discharged in a bankruptcy and you'll definitely need a Chicago bankruptcy attorney on your side.

Chicago Bankruptcy Attorney and Non-Dischargeable Student Loans

The federal government enacted several bankruptcy laws in the 1990s to protect taxpayers from covering too many student loan defaults. Even now it is estimated (by Sallie Mae) that the average U.S. family pays about $400 per year in taxes toward bankruptcy court costs, regulations and staffing. That amount is for every average family, whether they file bankruptcy or not, funding these federal programs is expensive. Most student debt is non-dischargeable in bankruptcy, that is unless you can prove undue hardship.

Chicago Bankruptcy Lawyer and Undue Hardship

Since 2005, the only way to get your student loans discharged in bankruptcy is by proving that this debt is an undue hardship on you and your family. To discharge your student loans through an undue hardship is very difficult and requires filing a separate action known as an adversary proceeding with the bankruptcy court. In short, you are required to sue the student loan company through the bankruptcy courts while your bankruptcy is pending. An adversary proceeding to determine the dischargeability of student loans may be brought in either a Chapter 7 or Chapter 13 case.

Chicago Bankruptcy Attorney Explains Chapter 13 and Student Loans

If you do not qualify to have your student loan debt discharged in a Chapter 7 bankruptcy, a Chapter 13 may still be very useful. A Chapter 13 bankruptcy is essentially a consolidation of your debt; you make one payment each month to a Chapter 13 Trustee. The Chapter 13 Trustee then distributes that money to your creditors according to the terms of your Chapter 13 plan. In many jurisdictions, it is possible to pay your general unsecured debt (such as student loans) back at a very small percentage on the dollar. At the end of a Chapter 13, most general unsecured debt will be discharged, except for student loans. Any remaining balance of student loan debt will survive the Chapter 13 discharge. Still, a Chapter 13 will act as a quasi-deferment of student loan debt. While you are in a Chapter 13, all creditors, including student loan lenders, cannot take any collection activity against you. The Chapter 13 provides valuable breathing space and allows you to sort your finances out under the protection of the federal courts.