Special Debts are debts that are treated differently in bankruptcy
Video Transcribed: Edward Kelley here, at one, eight, eight debt line, and we’re starting a new series, and this is entitled special debts. So as opposed to your run of the mill unsecured debts which have no collateral, typically credit cards, medical bills and the like, personal loans, payday loans. These are debts that are treated very differently in bankruptcy, either not dis-chargeable at all or only dis-chargeable under certain circumstances. So the first special debt we’re going to deal with is student loans. And we’ll get this out of the way. I know most of you know that a proper student loan cannot be discharged in a bankruptcy currently under any circumstances.
There are some federal remedies if you work for the state, I believe, for 10 years. Well I’ll refer you to another lawyer on that, I’m not sure of all the requirements, but there are situations where they can be forgiven. And obviously if you have a student loan, you probably have had it forbearance and understand you can ask your lender. There’s an income driven repayment. There’s some options to deal with the often crushing impact of student loans. But bankruptcy unfortunately so far, is not one of them.
Now let me clarify. A student loan in this context means one that’s federally backed. If you just get a loan and it’s used for tuition or books, but it’s not federally backed, then that’s not a student loan, totally dis-chargeable. So we’re talking about the government protecting itself here, where it has backed the student loans, it will not allow you to discharge them. And unfortunately in most Chapter 13 jurisdictions, it won’t give you any credit for what you’re spending to pay those back.
Now there are some jurisdictions that will do that and I have found in chapter sevens, although the law is to me not clear on this. If you have a valid student loan payment that you have been making and that you can document, you should be able to deduct this from your expenses, in terms of your means test, in order to meet that.
So, let’s say your household and your gross income, your $200 a month over and can’t do a seven. Well, if you have a valid student loan payment where you’re paying 250 a month back towards your student loans, that, in most jurisdictions arguably, but usually that’s the way it works out, that will bring you down into the realm of chapter seven, most trustees. Although that’s not technically necessarily mandatory, that amount anyway, that is something most chapter seven trustees will allow you.
A little bit different in a 13 which can be frustrating. And a student loan, if it’s an amount or if it pays off within the term of the plan, then you may have to pay the entire thing in your plan. I’ve seen many plans rendered unfeasible by student loans. So if you have those, you definitely want to find out exactly how much they are, when they pay off, where you’re at and talk with your attorney about those.
It can be really problematic in a 13, and in a seven they just can’t be discharged in any way, but they may be able to help you qualify to do a seven if you can’t otherwise. Obviously any payment made towards your student loans, because they’re not dis-chargeable, is money well spent. Generally, I try to encourage all of my clients, discharge everything you can and pay as much as you can on your student loans and taxes. So that’s debt number one. Pretty straightforward, but we’ve gotten it out of the way. Student loans, pretty much out of luck. And we’ll continue with taxes in the next edition to one, eight, eight debt line. As always, you can reach me at that number or email me at Edward@wirthlawoffice.com. W-I-R-T-H law office.com. See you soon.