Qualifying for “undue hardship” to discharge (write off) student loans is not easy. But Chapter 13 gives you powerful help over the timing.
The Much Better Chapter 13 “Automatic Stay”
Last time we explained how bankruptcy’s “automatic stay” immediately stops student loan collections against you. But if you file a Chapter 7 bankruptcy this protection from collections lasts only the 3-4 months that the case lasts. If you qualify under “undue hardship,” you could discharge (write off) your student loan debt during your case. Then the student loan creditor could no longer collect that debt.
But if you can’t show “undue hardship,” Chapter 13 buys you much more time, and more timing flexibility.
Chapter 13 Simply Buys More Time
Chapter 13 buys more time because a typical case lasts 3 to 5 years. The “automatic stay” prevents collection actions this entire length of time. A student loan creditor could try to persuade your bankruptcy judge to allow it to collect before the end of your case. But usually this doesn’t happen. So regardless of anything else, Chapter 13 puts off your student loan creditor(s) for a fairly long time.
Chapter 13 May Buy Time Until You DO Qualify for “Undue Hardship”
To discharge a student loan you (or your dependent) must be experiencing an “undue hardship” at that time. Chapter 13 gives you the flexibility of waiting for up to 5 years until you meet that condition. You file the case, and throughout its life your student loan creditor(s) is (are) prevented from collecting. Then, as soon as you do qualify for “undue hardship,” your bankruptcy lawyer would file the discharge petition.
For example, assume you or a financial dependent had a worsening chronic medical condition. But that condition was NOT YET preventing you from working, so that you were not yet in the circumstances that your student loan(s) was (were) preventing you from maintaining even a minimal standard of living. You could not petition for “undue hardship” discharge yet. But Chapter 13 would allow you to wait as long as 5 years after filing the case. This would give you time for your condition to worsen until you did met this requirement.
Chapter 13 prevents your student loan creditor(s) from chasing you for years. And it also allows you to delay asking to discharge your student loan debt(s) until the point when you’d qualify. In the right circumstances these could be huge advantages.