Student loans can have top priority in Chapter 13 plan

Many Florida residents have a large portion of their total debt load in the form of student loans. These obligations are usually not able to be discharged in a bankruptcy, so Chapter 13 bankruptcy plans may in some cases call for them to be paid off first. The decision to prevent the discharge of student loan debt was made by Congress, and the rule can be found in Section 523(a)(8) of the Bankruptcy Code.

On Dec. 12, the U.S. Bankruptcy Court for the District of Kansas ruled that a Chapter 13 bankruptcy plan that placed a higher priority on the repayment of student loans was fair according to the law. The case involved a couple that had filed for bankruptcy in February 2015. The couple’s Chapter 13 repayment plan stated that they would pay off their student loan debt in full before they would make payments to any other unsecured creditors.

The bankruptcy court found that discriminating against other creditors in favor of student loan lenders was not unfair, and it approved the couple’s repayment plan. The court’s decision was partially based on the fact that student loans have non-dischargeable status. Another factor that the court took into account was the fact that the couple had made significant payments to their other unsecured creditors before they filed for bankruptcy. While paying off almost $80,000 in debt over four years, the couple had fallen behind on their student loan and mortgage payments.

Because student loans are not dischargeable, they will be treated differently than other debts in the bankruptcy process. People with many outstanding debts may want to discuss their situation with a lawyer before making the decision to file under Chapter 13.