By Peter Bricks
In recent years, there has been a big emphasis on the amount of student loan debt we have as a nation. In 2012, student loan debt rose to $914 billion.
Logically therefore, plenty of Chapter 13 debtors also have considerable student loan debt, which is categorized as general unsecured debt in bankruptcy. Particularly as the means test does not have a line item deduction for student loan payments, there can be a disconnect between the ability to keep paying student loan obligations, as well as to pay all available disposable monthly income amount to the trustee.
So how can one pay both your contractual student loan payments and all available disposable monthly income to the unsecured pool, per the means test formula? The answer is that it is possible, but that in many instance one cannot do both.
The answer to the debtor’s dilemma will lie in the district that the debtor resides. Note that as a Woodstock, Georgia bankruptcy attorney, I primarily file cases in the Bankruptcy Court for the Northern District of Georgia.
Some districts will allow an unsecured payment to be treated as a “special class,” and paid at the contractual rate outside the plan payments. This is because 11 USC 1322(b)(5) allows for payment “on any unsecured claim . . . which the last payment is due after the date on which the final payment under the plan is due.”
However, other districts will not allow for special treatment and lump the student loan debt in with all the other general unsecured claims, to be paid at the same pro rata percentage.
Most likely if the debtor’s district allows for special treatment for the student loan debt, the debtor would prefer this method. It would result in the debtor being able to remain current on student loan payments even while in bankruptcy, which is particularly important because student loan debt is non dischargeable under almost all circumstances.
Also, even if the debtor’s district allows contributions outside the plan in general, specific circumstances will probably be considered. For instance, if the debtor wants to pay the contractual rate of $400 per month to the student loan creditor while paying next to nothing to the other general unsecured creditors, that probably will not fly.
Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys (NACBA), and is a contributor to BankruptcyBlog.org. He has offices as a bankruptcy attorney in Cumming, Atlanta, Dunwoody, Jonesboro and Woodstock.