When consumers have more debt than they can repay, bankruptcy is a good way to eliminate that debt and get back on track. There are two types of bankruptcy available to a consumer, a Chapter 7 or a Chapter 13. A Chapter 7 is a liquidation of debt, where all of the unsecured debts are wiped out, giving the debtor the chance to pay for the secured debts they choose to repay (like house and car obligations). A Chapter 13 bankruptcy is a reorganization of debt, which means the debtor repays secured debts mostly in full, and only a portion of unsecured debts like credit cards or medical debt. In order for creditors to get paid when a Chapter 13 is filed, they have to file a proof of claim. A proof of claim outlines what is owed, and the repayment terms. The Court will set deadlines for when claims are due, so a complete picture of what is owed can be given without wondering if other claims will be filed later.
But what happens when a lender files their claim late? And, what happens if that lender is a student loan holder? Student loans are also unsecured debts, but unlike credit cards and medical bills, student loans are not typically paid back at only a fraction of what is due. Here are some things to know about what to do if your student loan lender files a proof of claim after the deadline to do so:
• Claims have to be accompanied by supporting documentation. If the lender fails to include the proper supporting documents, an argument can be made that the debt is no longer due. This is an especially useful tool if the claim is filed late, but also dates back to an old loan.
• Late filed claims are generally not accepted, and thus not subject to repayment. But student loans are usually required to be repaid, despite the rules on discharge of debts. So even a late filed student loan claim may have to be paid back during your case.
• In order to challenge repayment of a student loan, you should not rely on the creditor failing to file a proof of claim. Instead, you have the option of filing an adversary case within your bankruptcy case to claim repayment of the student loan would create a hardship on your or your dependents. This is the most common way to have a student loan debt discharged in bankruptcy, and does require you to prove how repayment would result in hardship.
Student loan repayment gets tricky when you file bankruptcy. In order to get the most out of filing for bankruptcy, call us to find out the details on what you will and will not be required to repay. We will explain your options to you, so you can make a decision that meets your needs.
For more information about bankruptcy, contact us at www.DsouzaLegalGroup.com.