The Tricky Terrain of Student Debt

Post Authored by Alex. J. Whitt

Most Americans are all too aware of the current student debt crisis.  In 2018, total student debt rose into trillions, with Illinois’ total coming up to over $50 billion.  Around 10% of the loans defaulted, financially straining millions of borrowers.

Whether the student debt is owed to the government or a private lender, these creditors can be particularly aggressive.  That pressure is compounded by the fact that student debt can difficult to eliminate in bankruptcy.  In chapter 7 bankruptcy, people give up some of their property in exchange for walking away from most debts.  However, for student debts, they may have to file an additional lawsuit and show that their circumstances are severe and are likely to persist for a significant portion of the student debt repayment period.

A chapter 7 case is not the only option. Repayment plans, which differ from those offered by the lenders, can take the form of a chapter 13 bankruptcy.  This can be tricky because there are limits on the types and amount of debt a person can have to be eligible for chapter 13.  People who would otherwise qualify for chapter 13 need to review how their debts fit within the limits spelled out in the Bankruptcy Code.

If a chapter 13 cannot provide a repayment plan, relief may be sought in a chapter 11 case.  Unlike a chapter 7 or chapter 13 case, chapter 11 cases may require more detailed negotiations with creditors.  In a chapter 11 plan, unsecured creditors must be paid in full before a person can retain property under a reorganization plan unless they agree to different terms.  In other words, in order to keep their property in chapter 11, people are required to pay everything back unless they can strike an agreement with creditors to devise a plan that works for everyone.

Each of these chapters of the bankruptcy code offers different costs and benefits for handling debt in general.  With the average yearly cost of tuition and fees for higher education well into the tens of thousands, it is no surprise that increasingly, most of a person’s debt is student loans. Each chapter of the bankruptcy code navigates the tricky terrain of student debt differently, and determining which chapter best applies requires careful consideration.

About the Author:

CBA-Meet the Com.-5115Alex Whitt is an associate at Hiltz Zanzig & Heiligman LLC and concentrates on representing consumer debtors in chapter 7 and chapter 13 cases.  Alex attended the University of Iowa where he graduated with honors with degrees in English and Linguistics.  He then attended law school at The John Marshall Law School in Chicago. While in law school, Alex served as Executive Justice of the Moot Court Honors Program and worked as an extern for then Chief Bankruptcy Judge Bruce W. Black.  Alex graduated from the John Marshall Law School in the top ten of his class.  He serves as a Director in the Young Lawyer Section’s Executive Council of the Chicago Bar Association.

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