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The Bankruptcy StrategistFeaturesBanking and Finance LawsBankruptcy

Court-Based Student Loan Management Programs Can Facilitate Repayment of Debt Under Chapter 13

By Igor Roitburg and Scott F. Waterman
August 01, 2022

With student loans ranking as the second highest source of consumer debt in the United States, the federal government took significant measures starting at the onset of the COVID-19 economic crisis to protect student loan borrowers with loan repayment moratoriums. As these moratoriums are due to expire, many debtors will soon be faced with the challenge of how to repay and manage their debt. While bankruptcy traditionally has been seen as a challenging pathway for debtors with student loans, court-based student loan management programs have been adopted to facilitate the repayment and resolution of student loan debt within the Chapter 13 bankruptcy process.

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The Process Absent a Court Program

Typically, when a debtor with student loans files bankruptcy, they are often caught between the proverbial rock and hard place. It is nearly impossible to discharge student loan debt under the current bankruptcy legal standard. Under current bankruptcy law, debtors cannot discharge student loan debt unless they can show that the loan payment imposes an "undue hardship."

Generally, this means that debtors cannot maintain a minimal standard of living, the circumstances are unlikely to improve, and good faith efforts have been made to repay the loans.

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