Chapter 13 bankruptcy and student loan debt in California
Many people decide to continue their education in the hopes that it will help them land a better job. They may not be able to afford the costs of tuition, so they take out student loan to help them pay for school and make ends meet.
When these students graduate, even with a degree in their chosen fields, they are unable to find work. To make matters worse, they now must pay back the student loans that they had received while they were in school. This places a significant financial strain upon them, and they may start falling behind on other bills. If these problems become too overwhelming, they may be forced to consider filing for bankruptcy.
Unfortunately, bankruptcy does not discharge this type of debt. Any student loans that were received from the government must be repaid, unless the borrower is able to demonstrate undue hardship. This is an almost impossible standard – with undue burden being generally defined as permanently disabled or diagnosed with a terminal disease. In these cases, filing for bankruptcy simply allows the individuals the time to reorganize their finances, and perhaps be able to start making payments after eliminating other debts they may have.
However, there may be an option available to some individuals struggling with student loans, but it will depend greatly upon the borrower’s situation. Those borrowers who have student loans that were not government backed which are considered purely private might be able to have their debts discharged in certain circumstances.
In California, the statute of limitations for actions based on contracts is four years. Recent court rulings have stated that a statute of limitations does not toll during a Chapter 13 bankruptcy. This means that the time continues to run while the bankruptcy is ongoing.
Chapter 13 bankruptcies may last longer than four years, so, if the borrower cannot make payments during the bankruptcy, the lender may be out of luck after the four-year statute of limitations period has passed. They are prohibited from pursuing a collection action, and may face liability themselves if they go after the debtors.
These are very complicated scenarios, and it is important that you work with someone who can explain the process to you. If you have questions about how to resolve your current financial situation, speak to an experienced bankruptcy attorney about the options that are available to you. You may be able to eliminate your debts, and start rebuilding your finances instead of continuing to struggle making minimum payments.
You might think bankruptcy will cause problems for your credit, but in many cases, it will allow you repair some of the damage that you have already suffered. In time, you may even show an improved score which may enable you to receive a loan to buy necessary items. It is important to consider these steps as soon as you experience problems, because the past-due notices and collection agencies are not going to suddenly stop unless you take action.