Heather and All,

This forum is very helpful! Great resource that I really appreciate.

My family and I are considering bankruptcy (Chapter 7) in order to liquidate some sizable credit card bills that are weighing us down in our ability to really take a chunk out of our student loans on a monthly basis. Both together are suffocating us financially.

In talking to lawyers, it seems that we would qualify under the means test for our state. However, we are very concerned about the prospect of losing our ability to pay back our federal student loans under the (life-saving) IBR program should we declare. We would actually be happy to continue repayment at our current IBR rate throughout the bankruptcy, but are unsure if that is a possibility.

So . . . are we automatically kicked off of IBR when we declare bankruptcy? Can we continue to pay our IBR payments by speaking with the servicing agencies/holding banks? If we are kicked off of IBR, how long does it take for us to “get it back?”

We are just wary of declaring bankruptcy to rid ourselves of credit card debt when we would just be gaining it back in loan repayments that would be IBR-less.

I appreciate any thoughts from Mrs. Jarvis or anyone else “out there.”

Best,
A

When you file for bankruptcy, your lender will receive notification of the bankruptcy.  Bankruptcy carries with it an “automatic stay”, which requires creditors to stop collecting on your debts.  This is true of student loans, even though they are not automatically dischargeable in bankruptcy.  So, if you want to keep making your IBR payments, you would need to do is waive your automatic stay as to your federal student loans.

That being said, even after the automatic stay hits your student loans, you could still voluntarily make payments against them, they just wouldn’t be IBR payments that count toward IBR forgiveness.

If you consider bankruptcy further and hire an attorney, they should be able to help you navigate through this.

Alexandre,

Thanks for this information. So declaring a Chapter 7 bankruptcy does not stop, interrupt, or otherwise hinder my ability to repay through the IBR program? I can elect to keep paying through IBR throughout and after the bankruptcy with no interruptions if I so desire? That would be great. I just don’t want to be kicked out of the program.

Do you (or anyone) know if it is wise or unwise to call these federal loan servicing companies (Sallie Mae/Fed Loan/etc) and let them know that I would be filing and that I want to stay on IBR and pay consistently through the process of the bankruptcy and afterwards?

Thanks for the continued help!

Best,
A