What does Chapter 13 do for student loans?

Does finishing a Chapter 13 plan wipe out student loans?

No. The discharge a debtor receives after completing a Chapter 13 plan does not cover student loans of the kind the Bankruptcy Code excepts from discharge. To the extent the plan did not pay them in full, the debtor still owes them after the case ends.3 1

The exception is the same one that applies in Chapter 7: a student loan is discharged only if repaying it would impose an undue hardship on the debtor and the debtor's dependents.4

What does Chapter 13 do while the plan runs?

Chapter 13 is a repayment plan for individuals with regular income. It lets them keep property and pay debts over time. For a student loan, the relief during the plan is real, even though it is temporary.1

• Filing triggers the automatic stay, which stops most collection actions, including wage garnishment on a defaulted loan.2
• You make plan payments to a Chapter 13 trustee, who pays creditors. What a student loan receives during those years is set by the plan.1
• The plan generally runs three years if your income is below the state median and five years if it is above. It cannot run longer than five years.1 5
• A special co-debtor stay generally stops creditors from collecting a consumer debt from someone who owes it with you, such as a co-signer.1

What happens to the loan balance during the plan?

Because the loan is not discharged, the part the plan does not pay remains yours. A plan that pays a student loan less than its regular payment for several years can end with a balance that is still large.3 1

The law also limits interest payments through the plan. A plan may pay interest that builds up after filing on a nondischargeable unsecured debt only if you have disposable income left after providing for full payment of all allowed claims.5

How interest is handled on your loan while the case is open depends on the loan and on your court. Ask a bankruptcy lawyer or the loan holder before assuming the balance will hold still.

Can the plan treat the student loan differently from other debts?

A Chapter 13 plan may put unsecured claims into separate classes, but it may not discriminate unfairly against a class. The law expressly allows different treatment for a consumer debt that another individual is also liable for, such as a co-signed loan.5

A plan may also provide for curing a default and keeping up regular payments during the case on a long-term debt whose last payment is due after the plan ends.5

The wording of the law does not say what counts as unfair for a student loan, so whether a particular plan design is accepted depends on your court. That is a question for a lawyer who files Chapter 13 cases in your district.5

Can you ask for an undue hardship discharge in a Chapter 13 case?

Yes. Asking a court to decide whether a debt is dischargeable takes an adversary proceeding, a separate lawsuit inside the bankruptcy case, and a debtor may file the complaint that starts it.6 7 8

The bankruptcy rules set no deadline for that complaint when the debt is a student loan. It may be filed at any time.8

For federal loans, the Justice Department's attestation process begins once a debtor starts the adversary proceeding. The bankruptcy judge makes the final decision.9 6

If the court finds undue hardship, the loan may be fully discharged, partially discharged, or left to be repaid on different terms such as a lower interest rate.10

How the timing of that lawsuit fits with a plan that is already running is a question to raise with a lawyer early.

Which problem are you trying to solve?

Chapter 13 answers some student loan problems and not others.