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Dealing with Student Loans in Bankruptcy just got Easier

Fast forward to August 1, 2019 (the real date of the Bankruptcy Court’s Program), and it appears as though that landscape has changed.

Beginning on August 1st, the Bankruptcy Court is applying a process for a Student Loan Modification Program (SLM Program) (Administrative Order FLMB-2019-1).  For those who have no idea or who are unaware, the USA Bankruptcy Court for the Middle District of Florida (the “Bankruptcy Court”) has an efficacious history of applying programs of this kind.  The Bankruptcy Court’s (“MMM Program”) Mortgage Modification Mediation program was one of the first in the country.  The MMM Program has been adopted by many bankruptcy courts across the country.

The SLM Program seems to utilize the most effective feature of the MMM Program, i.e. the parties are prerequisites to communicate by a portal system in good faith.  The portal System is used by the Bankruptcy Court to eradicate the “we never received the documents” reason that creditors usually used in these conditions. While I don’t forestall that borrowers will unexpectedly have many options concerning repayment that they did not have prior to filing bankruptcy, the SLM Program is essential.

First borrowers are capable to pay their student loan payment by their chapter 13 plan.  Before the SLM Program, debtors could not make payments on their student loans causing to owe more after bankruptcy then they did going in; robbing them of the fresh start they required. Now with SLM program, all debtors are capable to work- out an agreement to pay down, possibly a considerable portion, of that debt. This is an important the reason is; in a chapter 13 Bankruptcy debtors must pay what their creditors would have received in a Chapter 7 or their one-use income, theoretically, if they work out a payment plan under the SLM Program, more money would go to pay the non- dischargeable loan debt instead of the dischargeable unsafe debt sendoff them in a much better position. I say “theoretically” because only time will tell if the SLM program endures challenges by creditors or executors.

The second motives the SLM Program is important is that it seems to let debtors to preserve their IBR Plans. Proceeding to the SLM Program, the debtors who had an IBR Plan went into deferment and were no longer adequate to continue with the programs.  Since most of the IBR Plans have a feature that forgives the remaining debt after a set period of time, the filling of Chapter 13 Bankruptcy would extend the time to forgiveness for 3-5 years. With the implementation of the SLM program, debtors are no longer punished for the time they spend in Bankruptcy.

The Last causes the SML Program is very important that it is a concrete step is resolving the student loan crisis.  While structural changes require to be made in Congress (here’s to hoping Congress makes student loans generally dischargeable again), programs like the SLM Program show that courts are will to take the steps essential to address this crisis within the limits of the law as currently located. Whether the SLM Program works or not, I thanks the Bankruptcy Court for taking the initiative to aids fight the program.

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