Chapter 13 & Student Loans

[cspa522]

I know that my husband's student loans can't be discharged or included in the plan, and that's okay. But I thought I read somewhere that if we're in a 5 year C13 plan, our repayment of his student loans is deferred until we're out of the plan? Does anyone know if this is true?

[SMinGA]

Yes & no. They are treated like any other unsecured loan in the plan. So you would not make a student loan payment, though they'll get paid some thru your plan if your plan pays $ to unsecured creditors. You would resume payments after discharge.

[cspa522]

I should say, he's currently in school. Has a little less than 2 years to go. Will we have to restructure the plan at that point? I swear I heard my lawyer say we can get them deferred until we're out of the C13, but now I'm not sure if I heard that correctly.

[SMinGA]

They're deferred meaning you don't make payments on them. You just make your plan payment. But they are still an unsecured creditor - so if your plan pays anything to unsecured (after mortgage arrears, atty & trustee fees, taxes, etc.) then the student loans get something just as all unsecured claims would.

I don't see why a plan mod would be needed based on the student loans. The ones he already owes would file claims. May need to modify once he is out of school and working, but by then you'll need to update expenses as well as income.

I should say, he's currently in school. Has a little less than 2 years to go. Will we have to restructure the plan at that point? I swear I heard my lawyer say we can get them deferred until we're out of the C13, but now I'm not sure if I heard that correctly.

[cspa522]

Currently we don't pay anything. We don't have to start paying on them until he's out of school, within 6 months of graduation. So if we start our C13 plan in say, January of 2011, and he has 2 years of school left, we'll be in the middle of the plan when we need to start repaying them.

[NoTomatoCan]

Just to clarify some terms... while you are in school (and for an optional total of 3 years while out of school over the life of your loans if they are govt student loan and certain criteria are met) your student loans are "deferred". That means no interest accrues and you do not have to make payments.

"Forbearance" is what will likely happen when your husband finishes school. It sort of happens by default when you are in BK. That means you don't have to make payments but interest DOES accrue.

So no, you will not have to (and most likely will not be allowed to) include student loan payments as part of your CH13 plan. You can always make payments with any monies left over in your budget, but that is optional. Note - there are a handful of districts that allow student loans to be included in your budget, but they seem to be in the extreme minority. Also (of course) if you are in a 100% payback, then you would be allowed to repay them.

So, the likely outcome is that the student loans will be repaid at the same % as your unsecured creditors, and once your plan is completed, you will go into normal repayment, with any interest not covered by your plan payments tacked onto the balance owed.

[NoTomatoCan]

One thing to note about the interest that accumulates... the impact of this depends on your payback % and the % of your debt that is student loan debt.

We have student loan debt of about $140k at around 3% interest. Roughly $4,200 per year in interest. At a 20% payback in our plan, we will be paying around $28k back to student loans. So while it isn't much (and depends on WHEN the trustee makes the payments due to compounding interest) we will actually cut into our student loans by a few thousand dollars over the life of our plan.

[jl37]

Sorry to break in on this post but this question has brought up a similar question of my own. I am 2 months into a 60 month 100% plan. Originally I did not include my student loans but was able to go ahead and add the 27K to the plan before my confirmation hearing in 2 weeks. Is it anyone's understanding that since this is a 100% plan that at the end the loans will be totally paid off? My lawyer mentioned it but I've seen numerous posts pointing at interest still accruing. Or was that only in the case of a less then 100% payback?

Thanks and again sorry to barge in.

[despritfreya]

In response to:

"Is it anyone's understanding that since this is a 100% plan that at the end the loans will be totally paid off? My lawyer mentioned it but I've seen numerous posts pointing at interest still accruing."

Interest on the student loans will only be paid if your Plan provides for it. If you are paying 100% of all allowed claims your Plan may provide for the payment of interest on those claims that are simply not dischargeable. See 11 USC 1322(b)(10).

[jl37]

Thanks. Well in this case it is just added into the plan to be paid 100%. There is no interest. From what I understand this loan should no longer be owed on after the 5 years.

[despritfreya]

In response to:

"There is no interest. From what I understand this loan should no longer be owed on after the 5 years."

Please look into this. Unless you have an interest free student loan (I suppose such is possible), interest continues to accrue during the bk. If you are not providing for payment of the interest you will owe the interest accumulation (granted on a sliding scale as the principal is paid) once your 13 discharge is entered. Please discuss this with your attorney to verify the status of the interest so that you are not surprised once you have completed your case.

[jl37]

Ah so whereas for instance credit cards with 20% interest are paid back at 100% only principle student loans though not dischargeable are allowed to still get their interest in a repayment plan?

So I owe 27k and that amount is to be paid at 100% in my plan which adds something like 250 per month. After all that there is still money owed? I would have thought it was treated like any other unsecured debt. :-(

[despritfreya]

I think you are understanding. While there may be some jurisdictions that require the Plan to provide interest on all claims if it is a 100% payback, mine does not. If you are in such a jurisdiction then my assessment is irrelevant. However, if all you are paying is 100% of the allowed unsecured claim (with no interest) then, yes, you will owe the accumulated interest on the student loans once the case is over. You will not owe interest on the credit cards as that type of debt is dischargeable.

[jl37]

Thanks. Wow that kind of sucks. 27K in payments over 5 years and if my calcs are correct it's gonna be something like 7500 after in interest. Bummer.

At least for the next 5 years the payment will be handled without me needing to right a check and figure out who to send it to now that it has been transferred around :-)

Thanks for the responses.

[NoTomatoCan]

Don't forget, you are also paying the trustee fee on that $27k.

They get you coming and going!