Student Loans Chapter 7 Bankruptcy Discharge What to do after the bankruptcy is over?

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One of the thorniest issues in a Chapter 7 Bankruptcy is often what happens to student loans.  Student loans are not dischargeable - i.e. they do not go away as a result of filing bankruptcy!  However, student loans do eventually disappear sort of like a "balloon loan".  All student loans die after 25 years after the date of first repayment plus deferments.

Until that time - you are on the hook and must continue paying.  Recently, a client shared with me his experience in dealing the aftermath of a Chapter 7 Bankruptcy.  Below is a narrative of the status of the loan mid-way just after the 341 meeting:

Debtor's account is not past due.

Sallie Mae received the 341 Meeting of the Creditors Notice.

Student loans placed on hold while in bankruptcy status.

No payments due during the life of the bankruptcy.

This hold on the accounts does not affecting Debtor’s credit.

Debtor needs to call Sallie Mae when bankruptcy is discharged.  At that time, his account is reactivated and billing will begin again.  Debtor will then begin to owe payments. 

There will be no arrears at the time of reactivation.  Interest will accrue during the bankruptcy’s life, but Sallie Mae cannot advise Debtor of what the interest may be or has been because that  can be construed as trying to collect on the debt.

Sallie Mae cannot tell Debtor what his balance is, but they can confirm or deny what he says the balance is.

Debtor does not have access to his account via the internet during the bankruptcy.

 This exception gives us a rare window into the behavior of the student loan servicer during the pendency of a Chapter 7 Bankruptcy.

Summary of Student Loan Treatment before, during and after a Chapter 7 Bankruptcy:

• Prior to Filing your Bankruptcy, you should pay on your student loans or seek deferment.
• Failure to do this will result in garnishment up to 15% of your gross income
• After you bankruptcy is filed, you CAN make voluntary payments on the student loan.
• This will keep your balance from rising.
• This IS NOT necessary.
• Only manual payments (check)
• Taking a "break" from payments for 4-6 months may allow you to improve your cash flow position to give you a "fighting chance" to be in good financial standing
• After your bankruptcy is closed, you should resume making your payments. 
• Recommend calling lender to confirm amount of payment and how to make payment
• Electronic payments resume being available

For more information about filing a Chapter 7 or Chapter 13 Bankruptcy, please email NLO Nelson Law Office Bankruptcy Information



To Call and speak with a Bankruptcy Attorney and Set-Up a free Bankruptcy Consultation, please call 877-GO-GO-NLO (877-464-6656).