Student loan debt is a huge concern for many Floridians engaged in the bankruptcy process. Traditionally it has been extremely difficult for a debtor to discharge student loan debt in a bankruptcy case, barring an extensive showing of “undue hardship”. However, the United States Bankruptcy Court for the Middle District of Florida has recently created the Student Loan Modification Program which allows debtors and creditors to work together to develop modified repayment plans of student loan debt in the bankruptcy setting. The Student Loan Modification Program was established by Administrative Order FLMB-2019-1 and became effective on August 1st, 2019. This article explores the basics of the Student Loan Modification Program and the steps in the process for debtors and creditors.
What is the Student Loan Modification Program?
The Student Loan Modification Program seeks to bring debtors and creditors together via an online portal system to create Income-Driven Repayment Plans (“IDRs”) , which modify student loan obligations to create more sustainable payment plans for creditors and debtors in bankruptcy cases. The goal of the Student Loan Modification Program is to encourage debtors and creditors to communicate and attempt to reach mutually beneficial modifications of student loan obligations in bankruptcy.
Who is eligible for the Student Loan Modification Program?
The Student Loan Modification Program is available to individual or joint Chapter 7, 11, 12, or 13 debtors who have a pending bankruptcy case filed in the United States Bankruptcy Court for the Middle District of Florida and who have student loan obligations under governmental or private programs.
The Student Loan Modification Program can be initiated by a debtor, creditor, or a Chapter 13 Trustee. Both the debtor and creditor, as well as their attorneys if they have them, must participate.
How does the Student Loan Modification Program work, and what are the relevant timelines?
The Student Loan Modification Program process can begin any time after a bankruptcy case has begun. The party seeking to begin the process, either the debtor, creditor, or a Chapter 13 Trustee, must file a “Notice of Participation in the Student Loan Modification Program”. For a debtor to initiate the process, they must have already paid the Bankruptcy Filing fee in full and complete the Document Preparation Software registration. The party seeing to begin the process must also serve a copy of the Student Loan Modification Program Administrative Order FLMB-2019-1 and file Proof of Service with the Court. Once these steps have been completed, the debtor and creditor may begin using the online portal to communicate, submit and review documents, and propose repayment plans that are based on the debtor’s income. The standard Student Loan Modification period during which this mediation process occurs is 180 days from the Notice of “Participation in the Student Loan Modification Program”. During this time, the automatic stay which ordinarily requires creditors to pause in any debt collection actions may be modified to facilitate the Program.
Both debtors and creditors have special responsibilities and deadlines they must abide by during their participation in the program. Both sides must proceed through the process in good faith, meet deadlines, and may only communicate with one another via the portal.
Debtor Responsibilities
Within seven (7) days of the “Notice of Participation in the Student Loan Modification Program” or portal registration by the creditor, the debtor must upload the Initial Student Loan Modification Package which includes standard Student Loan Modification documentation and creditor-requested supporting documentation and also pay a Portal Submission Fee to the portal vendor.
Within fourteen (14) days of the end of the Student Loan Modification Period, the debtor must file with the Court either a “Notice of Income-Driven Repayment Plan” or, if no plan resulted, a “Notice of No Resolution”.
Creditor Responsibilities
Within fourteen (14) days of the “Notice of Participation in the Student Loan Modification Program”, the creditor must register on the portal.
Within fourteen (14) days of a debtor uploading their Initial Student Loan Modification Program Package, the creditor must acknowledge receipt and designate a point of contact and legal counsel (if applicable).
Within thirty (30) days of their receipt of the Initial Student Loan Modification Package, the creditor must process the debtor’s document submissions and determine the debtor’s eligibility for loan repayment options.
Special Rules for Chapter 13 Bankruptcy
There are some special rules for Chapter 13 debtors who wish to engage in the Student Loan Modification Program. If the Chapter 13 Repayment Plan has not yet been confirmed by the Bankruptcy Court, the debtor must file an amended Chapter 13 Plan which describes the eligible student loan and agreed-upon Income-Driven Repayment Plan under the Non-Standard Provisions section of the Plan. If the Chapter 13 Repayment Plan has already been confirmed by the Bankruptcy Court, the debtor must file a motion to modify the confirmed Plan to separately classify the Income-Driven Repayment Plan as a Non-Standard Provision. Also, income-Driven Repayment amounts must be paid to the creditor under the Chapter 13 Repayment Plan.
Further, the Chapter 13 Repayment Plan cannot provide for partial or whole discharge of a student loan.
Final Thoughts
We at The Weller Legal group hope that the information provided to you in this article helped educate you on the topic of the new Student Loan Modification Program and how it could potentially apply to your bankruptcy concerns. If you are planning to file for bankruptcy in the near future and have concerns regarding student loan obligations in bankruptcy or believe you may qualify for the Student Loan Modification program, we at The Weller Legal Group have over 20 years of experience in helping our clients with their bankruptcies and improving their credit scores. We have offices located all throughout Florida, including Clearwater, Port Richey, and Lakeland. If you have any additional questions in regard to filing for bankruptcy or working on improving your credit score in the near future feel free to give us a call today at 1-800-407-3328.
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