Student loans are difficult to handle in bankruptcy, though it’s not totally impossible to discharge them or reduce them. Many people who owe student loans have high incomes, which makes it impossible for them to file a Chapter 7 Las Vegas bankruptcy due to the means test. Those who make more than their state’s median income will be forced to file in Chapter 13. The problem, though, is that the student loans remain and they are not priority debts receiving first distribution from creditors. There are a few options for handling the loans:
(a) Simply include the loans in the Chapter 13 plan and hope that enough of your monthly payments go to the student lender to at least keep interest from accumulating
(b) Pay on the student loan outside the Chapter 13 plan to keep it from ballooning.
(c) Claim the student loans are a “special circumstance” and the debtor should be allowed to proceed in the Chapter 7 notwithstanding the means test.
Surprisingly, option (c) is possible. The means test is not absolute, and bankruptcy judges have some leeway to allow debtors whose incomes are above their state’s median to avoid seeing their cases converted to Chapter 13 based on a presumption of an abusive filing.
It requires some good lawyering for the debtor, but often people who have high student loan burdens, credit card debts, medical debts, and others are just scraping by even though their incomes are otherwise decent. If the bankruptcy lawyer can show that the debtor would be worse off under Chapter 13—such as if the debt would grow if it weren’t paid while in bankruptcy—or that the beneficiaries of the repayment plan would be the trustee and the debtor’s attorney due to the fees collected, the judge just might side with the debtor and keep the case in Chapter 7. It’s circumstances like these that hiring an experienced Las Vegas bankruptcy pays off big time.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Freedom Law Firm Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-803-9251 to set up your free consultation.