Student Loans & Chapter-7

[Atlanta7]

Except in some rare situations, students loans do not get wiped out in chapter-7 BK. So, how does the distribution of liquidated BK estate work? Let's say, the BK estate has $100,000 liquidated assets. A unsecured general creditor has proof of claim for $130,000 and the student loans are $50,000. Since the student loans are not affected by BK, does all $100,000 from BK estate go to pay unsecured general creditors or part of the estate goes towards student loans?

[justbroke]

A student loan is just a general unsecured loan. They would be paid from the unsecured pool based on priority. Priority is generally unpaid taxes, but includes administrative fees such as Trustee and any attorney fees that are allowed.

The unsecured creditors are paid pro-rata based on their priority. Priority claims are paid in full (see above). Everything else is a general unsecured claim (for the most part) and are paid on a percentage basis.

The reason why federal student loans are not counted in your means test, is because they automatically go into deferment when you file. It doesn't mean that they are not a creditor.

[Karceno888]

A student loan is just a general unsecured loan. They would be paid from the unsecured pool based on priority. Priority is generally unpaid taxes, but includes administrative fees such as Trustee and any attorney fees that are allowed.

The unsecured creditors are paid pro-rata based on their priority. Priority claims are paid in full (see above). Everything else is a general unsecured claim (for the most part) and are paid on a percentage basis.

The reason why federal student loans are not counted in your means test, is because they automatically go into deferment when you file. It doesn't mean that they are not a creditor.

From what I understand, these student loans cannot be discharged.

Any other thoughts on this?

[justbroke]

From what I understand, these student loans cannot be discharged.

Any other thoughts on this?

You won't like the answer, but it depends. A bankruptcy debtor could file a complaint to determine dischargeability and seek to have the "educational" debt discharged. They say it's a little easier today than it was a few years back, but suffice it to say that there must be evidence presented that the loans are a burden and that you'd never be able to pay them. (Some of the "burden" requirements may have changed... I am not up to date on the dischargeability of student loans.)

[Karceno888]

You won't like the answer, but it depends. A bankruptcy debtor could file a complaint to determine dischargeability and seek to have the "educational" debt discharged. They say it's a little easier today than it was a few years back, but suffice it to say that there must be evidence presented that the loans are a burden and that you'd never be able to pay them. (Some of the "burden" requirements may have changed... I am not up to date on the dischargeability of student loans.)

My guess is if there is a mental or physical disability?

Its terrible that they took away that option for those that file without circumstances because the job market is quite abusive.

[justbroke]

My guess is if there is a mental or physical disability?

Its terrible that they took away that option for those that file without circumstances because the job market is quite abusive.

They have been moving to make it easier, not more difficult. In the past you'd have to prove that there was no way you'd "ever" be able to pay it back. Just having a "temporary" payment issue was not enough. A permanent and debilitating disability was usually indicative of an inability to pay.