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Student Loan Debt Received Priority Treatment – Chapter 13

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  • A Chapter 13 Plan proposed to pay student loan debt ahead of other general unsecured creditors.
  • Trustee objected to the payment priority proposal with the premise that the student loans were being given favored treatment of student loans and was unfair discrimination.
  • Debtor proposed to pay nearly $5,000 per month through the plan and treated two student loan claims which totaled $65,000 with a separate class.

Court Decision

  • Determining fairness is left to the discretion of the Bankruptcy Judge.
  • The Plan did not promise equality of distribution given the priority afforded to student loans.
  • Found this discrepancy fair, the other general unsecured creditors had received a significant benefit through the Debtors prepetition in a voluntary debt-management plan which resulted in their default on their student loan obligations.
  • Congress intentionally favored student loans by making them non-dischargeable.
  • Proposed Plan served the goal of giving the Debtors a fresh start.
  • Preferred treatment if proper, reasonable and fair discrimination was concluded by the Judge.

It is clear that you should use the services of a Certified Bankruptcy when filing for Bankruptcy.   There are many exceptions that could be argued on your behalf related to Student Loan repayments.