Reports have been surfacing that the Department of Education is kicking borrowers out of Income Driven Plans when they file bankruptcy. It makes no difference if they are in a Chapter 7 or 13. It also doesn’t matter if the debtor is current in their payments. The National Association of Consumer Bankruptcy Attorneys (NACBA) views this as a direct violation of 11 U.S.C. 525 (Protection against Discriminatory Treatment).
There are ways to counter this and remain in an Income Driven Plan to continue progress toward debt forgiveness including Public Service Forgiveness. A new development is spreading across the country to file what is called the Buchannan provisions in a Chapter 13 Plan. We have recently adopted this in Tampa, Florida.
On January 5, 2018, Trustee John Waage and Judge Catherine McEwen agreed to the following Non-Conforming language in 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.
While Tampa is still one of the few bankruptcy districts that allow this, this is starting to spread quickly. The Orlando division is also allowing this, although I haven’t seen an approved Chapter 13 Plan with IDR language so it may vary. Hopefully, more bankruptcy attorneys will start including these provisions in their plans as well.
If you have questions about filing bankruptcy or reducing student loan debt, please reach out to us for help! We have tons of resources on our website as well, Christiearkovich.com.