If you have a Federal student loan and file Chapter 7 bankruptcy, the status of your loan changes. Your loan is in forbearance until you receive your discharge. No payments are due and all collection efforts must stop. Although that gives you immediate relief, it also gives you a great opportunity to review your loans and develop a plan to get them under control once you come out of bankruptcy.

A Chapter 7 bankruptcy can last 4 months or more. During that time, you can determine the status of the loans, prepare documents to get out of default, consolidate or rehabilitate your loans, and determine the best repayment option. Once you receive your discharge, you can immediately file the documents and bring your account current and get your loans under control.

If your wages were being garnished, or if your loans were in default before you filed bankruptcy, the worst thing you can do is nothing. I have had clients fail to take care of their loans while they were in bankruptcy, only to find themselves in another financial mess after the bankruptcy because the Department of Education and their collectors immediately garnished their paycheck when they finished their bankruptcy.

If you have a Private Student Loan, you can use the time in bankruptcy to negotiate and implement a repayment plan. This is especially useful if you have co-signers on the loan.

You could use any deferments or forbearances remaining on your loan after the bankruptcy is complete. However, that may not stop interest from accruing, and you would be unnecessarily wasting valuable deferments and forbearances.

If you have student loans and are considering filing, or are already in bankruptcy, feel free to contact us if you have questions.