Question about student loans in Chapter 13

[Jimedwards]

I am pondering pulling the trigger on a Chapter 13 BK soon. Biggest concern is $45,000 in credit card debt.

I have $100,000 in student loans (5% APR) that I want to pay outside the BK but I've been reading some horror stories on this forum about student loans being automatically put into deferment (and interest accruing) during the term of the Chapter 13.

If this occurs, the additional student loan interest will amount to $25,000 over the 5-year period that I will be in Chapter 13.

If this is truly the case, I am better off hunkering down and paying my debts on my own. My CCs have low APR so (i) it would be cheaper to pay off my CCs over 5 years than to have my student loans increase by $25,000 and (ii) I will avoid having a BK on my record.

Is my concern about the student loans warranted or am I missing something?

Thanks

[kornellred]

It is always better to avoid bankruptcy if you can afford to do so. In your case, Jim, you have to ask yourself if you will be in a better financial position at the end of 5 years if you do not file for bankruptcy. In bankruptcy, you will be minus $45K in unsecured credit and plus $25K in deferred student loan interest.

There is no way you can pay off $45K in unsecured debt in 5 years if you make minimum payments, even if the APR is low and you never use available credit again - which is not realistic at all. What will be required is significant lifestyle sacrifice for at least a couple of years and a generous portion of good luck to get the unsecured debt monkey off your back. In fact, Chapter 13 bankruptcy exists because the chances of resolving an unsecured debt burden are abysmally small. But if you think you can do it - that is what you should do. Chapter 13 will always be there if it becomes necessary. Good luck!

[LadyInTheRed]

Consult with a couple of experienced local BK attorneys. They should be able to tell you if student loan payments are allowed on Schedule J in your local court.

From your other post, it spunds like you,ll be in a 100% plan, in which case budgetting fo student loan payments won't be an issue.

[toojerm]

My student loan and my mortgage were paid outside the plan. The student loan even kept reporting the ontime payments to the credit bureaus, which helped. Putting this in the 13 will only make your trustee fees go through the roof, do not do it!