The student loan debt crisis continues to loom large. In fact, many are predicting that student loan debt is the next financial bubble that is about to burst.
Many individuals are stuck with the ball and chain of excessive student loan debt and unwieldy monthly payments. With the economy still struggling to recover, many are underemployed and simply unable to cope with the financial burden of their student loan obligation.
While there are certain programs available to help Federal student loan borrowers (Forbearance, Deferment, Income Based Repayment, Etc.), there are few options when dealing with private lenders.
What’s worse, student loan collectors tend to be quite aggressive using bank levies, wage garnishments and other intrusive remedies to collect.
Unfortunately, student loans are not dischargeable in bankruptcy unless you can prove “undue hardship” which is ridiculously difficult.
However, the bankruptcy process can offer some temporary relief for a struggling student loan debtor and his/her co-signer.
Chapter 13 Deferment
For someone struggling with student loan debt and aggressive collection tactics, chapter 13 bankruptcy can be an effective tool to “defer” repayment.
Chapter 13 bankruptcy allows you to repay your debt using a 3 to 5 year repayment plan. In most cases, your monthly payment is based on your disposable monthly income.
If you are struggling to stay afloat financially, chances are your disposable monthly income is pretty low and therefore, your monthly chapter 13 payment will be pretty low.
In addition, filing any bankruptcy case invokes the automatic stay, stopping all collection activity.
So, if you are the victim of aggressive collection tactics or are in danger of defaulting on your student loans, chapter 13 essentially pushes off your obligation for 5 years. Your required monthly student loan payments get put on hold in place of your monthly chapter 13 plan payment.
Your student loan debts are now getting paid through the bankruptcy plan at a reduced rate.
It is important to understand that while in bankruptcy, interest is still accruing on your student loans, so depending on the plan payment, the overall amount owed on these loans could increase during the bankruptcy process.
While the Federal Government drags its feet and the banks drag you through the mud, all possible relief options should be considered. If you are at the end of the rope and can no longer carry your monthly student loan payments, consider chapter 13 bankruptcy.
You could buy yourself a substantial amount of time and possibly prevent financial disaster.
Image courtesy of VinothChandar (Flickr).