Ch 13 on the horizon....federal student loans in the mix

[midwestgirl44]

Well here I am...I finally bought my own home in March of this year, but being a single parent even with a higher income I've dug myself into a hole I can't get out of.

My monthly income after taxes is $5297 - $150 of that is taken from my paycheck to pay a loan I had through my 401K for a new transmission for my daughter's car and the down payment I had to borrow for my house. So I actually bring home $5147

- federal student loans @$95k with a monthly payment of $603 to Navient. (not late)

-  mortgage is $985 and includes taxes and insurance (not late)

- car payment $550/mo. (not late)

- credit cards close to $20K and minimum payments @$1K per month (starting to become late)

Monthly expenses (food, gas, car insurance, phone, electricity): $1,540

This leaves me with less than $500 per month in disposable income.

I am assuming I won't quality for a chapter 7 given my income.

I understand that a chapter 13 can include a repayment plan to certain creditors that may not equate to 100% of the debt. My question is, given my situation (and yes I have an appointment with an attorney in the next two weeks) would there be any benefit to including my student loans and car in the repayment? I need to keep my house and my car. Period....if anything for any bit of pride I have left.

I see examples where others have been able to dramatically reduce their student loan debt as a result of going through a chapter 13, but does the interest come back to haunt them and basically wash out any progress they made paying toward the principal?

[medicgrrl]

I don't think Federal student loans can be included. And with disposable income, I'm honestly not sure you'll qualify for bankruptcy. If you have $500 left each month after all of your expenses, why are you wanting to file BK?

[midwestgirl44]

I haven't included costs for my children in those amounts such as clothing, medical costs, school fees, etc. So in reality I suppose I misstatements when I said it was disposable. In reality it fluctuates. I am looking for answers from those with experience not judgment.

[medicgrrl]

I'm not judging. I filed Chapter 13. You still have to qualify for it. You can research more, but I'm almost positive that Federal student loans can't be included in bankruptcy. That would leave you with just the cc debt since you want to keep the car and mortgage. I was asking more information to try to help you, but it's all good. Best wishes.

[luxeprw9]

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@midwestgirl44 wrote:

Well here I am...I finally bought my own home in March of this year, but being a single parent even with a higher income I've dug myself into a hole I can't get out of.

My monthly income after taxes is $5297 - $150 of that is taken from my paycheck to pay a loan I had through my 401K for a new transmission for my daughter's car and the down payment I had to borrow for my house. So I actually bring home $5147

@- federal student loans @$95k with a monthly payment of $603 to Navient. (not late)

-  mortgage is $985 and includes taxes and insurance (not late)

- car payment $550/mo. (not late)

@- credit cards close to $20K and minimum payments @$1K per month (starting to become late)

Monthly expenses (food, gas, car insurance, phone, electricity): $1,540

This leaves me with less than $500 per month in disposable income.

I am assuming I won't quality for a chapter 7 given my income.

I understand that a chapter 13 can include a repayment plan to certain creditors that may not equate to 100% of the debt. My question is, given my situation (and yes I have an appointment with an attorney in the next two weeks) would there be any benefit to including my student loans and car in the repayment? I need to keep my house and my car. Period....if anything for any bit of pride I have left.

I see examples where others have been able to dramatically reduce their student loan debt as a result of going through a chapter 13, but does the interest come back to haunt them and basically wash out any progress they made paying toward the principal?

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I filed CH13 and "included" my federal loan.  What that did was allow me to pay interest only to the loans until my 60 months were completed.  It did not reduce my principal amount by one penny.  In the end, I paid way more than I initially owed, so that was a HUGE mistake.  I could have paid the loans off instead.   I personally have never heard of anyone reducing their debt, as student loans are not discharged through bankruptcy.

I was fortunate that I owned my car outright so I don't know the ramifications of including a car.

[Anonymous]

We should probably clarify a few comments here:

First, student loans are generally non-dischargeable in bankruptcy. That means borrowers are required to pay them back, unless they initiate a separate proceeding asking the court to consider them dischargable. Usually, this involves borrowers who will never have a means of paying off the loans due to disability.

Second, in a Chapter 13 plan, student loans generally MAY be included. Your monthly payment to the student loan would be determined by what portion of the non-priority debt is student loan debt. Then the amount available for payments on non-priority debt will be assigned to the lender on a pro-rata basis. If you don't pay off 100% of the loan balance, whatever remains will continue to be due after receiving a discharge. It is important that a proof of claim is filed for the creditor to receive payment.

Aside from all of that, one should not assume they are not qualified for Chapter 7 due to income alone. I recommend using the complete means test calculator to get a better idea of what is left over to fund a Chapter 13 plan. Speak with a few attorneys and ensure you're not being pushed into a Chapter 13 just because it earns the attorney a higher fee.

[Anonymous]

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@midwestgirl44 wrote:
I haven't included costs for my children in those amounts such as clothing, medical costs, school fees, etc. So in reality I suppose I misstatements when I said it was disposable. In reality it fluctuates. I am looking for answers from those with experience not judgment.

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It's important to get the full picture in order for those with experience to give you those answers . . I was wondering the same thing at first, truth be told. 

Your $550 car payment and $1500 for insurance, gas, food, groceries, phone jumps out at me. At over $2k/month this is your biggest budget line item. I think it likely that there are substantial cuts you can make in here to free up $$ to throw at your debts and possibly avoid a BK. Buying a car for cash to get you by a couple of years, switching phone and/or insurance carriers, cutting your grocery expense could be some suggestions.

[Anonymous]

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@Anonymous wrote:

We should probably clarify a few comments here:

First, student loans are generally non-dischargeable in bankruptcy. That means borrowers are required to pay them back, unless they initiate a separate proceeding asking the court to consider them dischargable. Usually, this involves borrowers who will never have a means of paying off the loans due to disability.

Second, in a Chapter 13 plan, student loans generally MAY be included. Your monthly payment to the student loan would be determined by what portion of the non-priority debt is student loan debt. Then the amount available for payments on non-priority debt will be assigned to the lender on a pro-rata basis. If you don't pay off 100% of the loan balance, whatever remains will continue to be due after receiving a discharge. It is important that a proof of claim is filed for the creditor to receive payment.

Aside from all of that, one should not assume they are not qualified for Chapter 7 due to income alone. I recommend using the complete means test calculator to get a better idea of what is left over to fund a Chapter 13 plan. Speak with a few attorneys and ensure you're not being pushed into a Chapter 13 just because it earns the attorney a higher fee.

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I agree wholeheartedly with this. I almost ended up in a 13 and didn't question it because of my income. I spoke with a different attorney and completed the means test with him and he said I qualified for a 7.

[Anonymous]

I didnt read all the responses but here is my one reply:  When I paid off my 13, which included all my student loans YES, as soon as that discharge hit, I was being contacted for interest owed for the entire time.  So now I have a small payment to Navient each month since I combined all the interest payments to them.

But I was shocked when this happened because I didnt expect to owe anyone anymore.