Ignoring your debtor’s federal student loans in their Chapter 13 bankruptcy can have catastrophic circumstances. While fixing vehicle, credit card and mortgage debt, you may have inadvertently allowed a debtor’s $100,000 federal student loan to balloon into nearly $150,000 by doing nothing. This is because the standard procedure of the Department of Education is to place these loans into forbearance during a bankruptcy. However, now in Tampa, we are permitted to use the following Non-Conforming Provision in Chapter 13 Plans to permit our clients to enroll in Income Driven Plans and even Public Service Loan Forgiveness whenever eligible.
On January 5, 2018, Trustee John Waage and Judge Catherine McEwen agreed to the following Non-Conforming language in our client’s case, In re Hyland, 8-17-bk-01564-CPM that now allows for Income Driven Repayment Plans concurrently with a Chapter 13.
The permitted language:
The Debtor(s) shall be permitted to pay her Federal Student Loan(s)/U.S. Department of Education Loans outside of the plan. Claim(s) XX shall be allowed, however, claimant shall not receive any distributions by the Chapter 13 Trustee under the confirmed plan. The Debtor(s) shall not be entitled to discharge in whole or in part of any student loans. The Debtor(s), is/are currently in an Income-Dependent Repayment Program (“IDRP”). The Debtor(s) shall continue to pay his/her Federal Student Loan(s)/U.S. Department of Education Loans pursuant to the IDRP separately and outside of the Plan without disqualification due to the bankruptcy. Federal Student Loan(s)/U.S. Department of Education Loans shall not place the student loans into a deferment or forbearance because of the filing of the Chapter 13 bankruptcy case. For so long as the student loans are paid outside of the plan, it shall not be a violation of 11 U.S.C. 362 or any other applicable law or regulation for the Federal Student Loan(s)/U.S. Department of Education Loans to communicate directly with the Debtor by mail, telephone or email. In the event that a different IDRP is offered by Federal Student Loan(s)/U.S. Department of Education Loans, which offers more favorable repayment options, the Debtor(s) shall be permitted to seek participation in such IDRP without disqualification due to this bankruptcy and without further permission of the court. Debtor(s) may recertify under the applicable IDRP annually or as otherwise required and shall within thirty (30) days following a determination of her monthly payment due pursuant to such recertification file an amended budget to reflect such change. Federal Student Loan(s)/U.S. Department of Education Loans shall not be required to enroll Debtor(s) in any IDRP unless Debtor(s) otherwise qualifies for such IDRP.
This is something we began advocating for over the summer last year starting with the comments period for the new Uniform Plan in late summer by asking folks to submit their comments about the unfairness for debtors who were not permitted to enroll in income driven plans like all other non-bankrupt borrowers. Thank you to all who submitted comments to the Judges to help convince them that this would help debtors by truly giving them a fresh start as opposed to a false start!
If there are any attorneys out there who would like a copy of our Memo of Law in this case, please feel free to send me an email. We also argued that grounds exists for a separate classification even when unsecured creditors suffer a minimally lower distribution due to the severe prejudice to debtors.
For more information about filing bankruptcy or about reducing private or federal student loan debt, please contact us.