Chapter 13 bankruptcy and student loans don’t seem to mix. However, to avoid collections, both types of loans are controllable in Chapter 13.  Additionally, Chapter 13 can force even government lenders to make a loan affordable.

Chapter 13 Bankruptcy and Student Loans • What You Need to Know

⎆ The Two Types of Student Loans

There are two basic types of student loans. Those are private student loans, and government student loans. Government student loans can garnish wages, seize tax refunds, levy bank accounts, and even take social security benefits without going to court. However, if you are in default, the government commonly take tax refunds, but rarely garnishes wages or seizes bank accounts. If this happens, increase your tax deductions so that nothing is lost.

Private student loans have to sue to force collections. Without judgment, private loans cannot attach wages and bank accounts. Private student loans cannot seize your social security check or your tax refund. Neither government nor private student loans can collect while you are in bankruptcy and the stay is in effect.

⎆ Chapter 13 and Student Loans • Simple Solution

So what is the answer? Supposedly, bankruptcy never helps with a student loan problem right? Wrong. Let us look at the real record in Kentucky. Best Case bankruptcy software looks at the records of how judges ruled in student loan cases. According to Best Case, about nine cases have been filed for hardship discharges in Western Kentucky in the last three years. Judge Fulton denied all three adversary proceedings. Judges Stout and Lloyd are split between granting and denying discharges.

Four scientific studies show that nationwide judges grant hardship discharges about half of the time. The reason why people win about 47% of the time is people who ask for undue hardship discharges make sure they have excellent cases. However, if you use an attorney, the rate is even higher!

In 2001, I was granted a partial hardship discharge by making the argument that taxes took almost half the income. Two ex-wives took the other half leaving nothing to repay student loans. Plus, I was caring for an elderly father. The only way to pay student loans was to not provide child support. Keep in mind that both the judge and the assistant attorney general were women. Interestingly, the argument won a partial undue hardship of about 80% of the debt. The statistics show that undue hardship discharges are granted slightly over 40% and less than 50% of the time.

⎆ Solving Private Student Loan Problems

What I do with student loans for clients is to file Chapter 13 cases that pay little or nothing. Filing Chapter 13 discourages private student loan collectors from every suing again. After being paid nothing for five years, most private loan servicers and lenders give up. The fact is, litigation wastes legal fees and expenses. If no payments are ever made, and no judgment is ever granted, eventually the statute of limitations makes the debt uncollectible and unprofitable. Instead, they file litigation in cases that are more likely to end in recovery. In some states, the statute of limitations is only 3 or 5 years, but in Kentucky, it is 15 years.

⎆ Solving Government Student Loan Problems

Government loans are normally made affordable through IBR loans. But servicers often demand unreasonable payments which lead to loan consolidation. Servicers earn fees from penalties and interest they collect. It is to their advantage for your payments and their commissions to be high. If you need to force the servicer to offer reasonable IBR payments, you must file an adversary for a hardship discharge.

In Chapter 13 Bankruptcy for student loans, the payments are often minimal. If the servicer demands unreasonably high payment terms, the issue can be placed before a judge. Then, the judge has to choose to allow a discharge of the student loan or deny basic medical care, food, and essential services to the family. However, that is an element of undue hardship.

A servicer often lowers the payments for an IBR or rehabilitation if you file an adversary. But, the client has to be willing to follow through with the additional expense and time to file an adversary. However, I find that these strategies work. Moreover, at least one of our judges states that Chapter 13 is an answer to servicers who do not offer affordable IBR and rehabilitations.


Litigating the student loan in state court against a private loan is a ton of work and takes an emotional toll on the client. My solution to filing a Chapter 13 has worked so far in every private student loan Chapter 13 case I’ve filed. It works by starving private student loan accounts to death.

Also, loans do not age for the statute of limitations purposes while you are in bankruptcy.  But Chapter 13 does age the amount of time private student loans go without payment. Filing Chapter 13 degrades the collectability of a loan to a point where it is considered financially non-profitable to litigate it. While there is a cost to Chapter 13 it is less expensive than a garnishment.

Filing a Chapter 13 seems less stressful on the clients than litigating private student loans in state court. A Chapter 13 student loan bankruptcy often has a minor 100 dollar a month or less payment into a Chapter 13. You gain the benefit of the bankruptcy stay. Chapter 13 places loans into an uncollectible status and often never sent to back legal collections again after Chapter 13 discharges.

With government loans, Chapter 13 balloons the account unless it discharges, but, income-based repayment is possible. With private loans, you have the opportunity to work with lenders who have to choose to modify the loan or take nothing in payments.

Resources for Bankruptcy

Louisville Kentucky Bankruptcy Forms

Bankruptcy Manual

Other Related Information

Getting Your Fresh Start Through Bankruptcy

Discharge Private Student Loans in Bankruptcy

Hardship Student Loans

If you are thinking about filing bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office right away to start the conversation. Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.