Articles Posted in Chapter 7 Bankruptcy

Prior Student Loan Sidebars have addressed the specific guidance and programs available to help with student loans in bankruptcy.  Some of these features include:

Enrollment in an Income Driven Repayment Plan rather than allowing ED to simply place student loans in a capitalizing forbearance during a Chapter 13 plan. We can do that here in Florida by using the Student Loan Management Program (“SLMP”).  Someone can come out of bankruptcy with years of IDR (Income Driven Repayment) credit toward forgiveness rather than huge balances owed on student loans.

Taking this one step further are new rules that allow a Chapter 13 bankruptcy plan payment to automatically count as an income driven plan payment.  That would allow a consumer to use high medical, mortgage, rent or child care costs when determining a student loan payment amount.  Basically, the holy grail next to a full discharge!  This is stalled by the SAVE injunctions and we don’t know yet whether it will take effect or not.  It does offer simplicity and court guardrails which is good.  It would require little to no effort by the Department of Education – all features that are good in a Trump administration.

While the Income Driven Payment application process is shut down  (paper applications were being processed, but now they too are reportedly on hold), to be first in line when it restarts, we suggest a paper application be sent to your loan servicer so it’s in the queue, and be sure to use the latest IDR application form.  (Form #1845-0102 with an expiration date of 4/30/2027).  Attached documentation of your income (latest tax return filed or a recent pay stub).  You can try to upload it to your servicer, but with most of the online systems halted, it may be best to send via paper certified mail with a return receipt.

An Income Driven Payment is one way a borrower can remain current on their federal student loans who cannot afford their normal Standard payment.  Please don’t ignore a student loan bill – it not only will incur late fees, but you will also have damage to your credit and the possibility of default which is not good for a federal student loan.  Please read back through our blogs for some of the reasons why.

You may have some forbearance left.  A couple days ago I blogged about forbearance options.  This will not accrue credit toward forgiveness but it will keep your credit in good standing and avoid default.

I’m sharing this here — it’s also being provided to our fellow attorneys signing up for our NACA webinar today at 2:00 p.m.

Helping your clients take their lives back from their student loans sometimes involve bankruptcy related solutions.  While filing bankruptcy has typically NOT been helpful for those with overwhelming student loan debt, there is good reason for re-evaluation of that view now.  Reducing student loan debt in bankruptcy has become much easier in 2024 due to two new programs rolled out by the Department of Education (“ED”).

First, many full or partial discharges of federal student loans are being awarded due to a new attestation process that went into effect in November, 2022 (the “Guidance”).  The rollout of this program was initially slow, but it is quickly picking up speed.  The process allows for the Department of Justice (“DOJ”) to work with ED to review and approve circumstances allowing for discharge in a process that is more transparent and consistent, with less burdens placed upon debtors by simplification of the fact gathering process.  Instead of traditional discovery such at requests to produce, interrogatories and depositions, the intent is to have the debtor fill out a questionnaire and attest to the hardship and other impositions that repayment of the student loans would create.  In this manner, the goal is to be much less expensive and far quicker than a traditional adversary proceeding.  Using the Guidance, certain presumptions for discharge now exist that did not exist previously.  Assessment of the debtors’ future circumstances and whether ED considers the debtors to have made good faith efforts to repay their student loans still occurs.  Once ED reaches a recommendation in accordance with the Guidance, the Court would still need to approve of the outcome.  In most circumstances, the Court would likely approve of the parties’ decision to discharge any student loan debt.

Big things are happening regarding Discover’s portfolio of student loans.  If you have one of these, please follow along and see what can be done.

Specifically, Discover is getting out of the private student loan business.  Fully.  They are sending letters to borrowers in a bankruptcy that they are forgiving the loans.

What does this mean?  Well, I would want to get in on this immediately and get a bankruptcy filed to take advantage of this situation.  I expect someone will come along to buy their portfolio.  Why not get a court order that says this debt is gone while you can??