Bankruptcy does not wipe out student loans except in situations of significant financial hardship.
Many student loan debtors can be relieved financially if they could modify their student loans to reduce monthly payments to amounts they could better afford given their current income.
The Middle District of Florida is making it easier to modify student loan terms and payments in a bankruptcy proceeding. The program, referred to as the student loan modification program or “SLM Program” is not unlike the bankruptcy court’s mortgage modification program implemented during the real estate recession.
The SLM program provides a procedure for student loan debtors and their creditors to participate in a court-sanctioned mediation that benefits both parties. Debtors may be able to reduce monthly payments commensurate with their actual income and expenses, and creditors receive more money than they otherwise would if the debtor defaulted on all payments.
The bankruptcy court’s SLM program imposes duties on both the bankruptcy debtor and the student loan creditor. The debtor is required to provide financial documents related to his financial ability to make loan payments including additional information reasonably requested by
the creditor. The creditor is required to promptly determine the debtor’s eligibility for repayment modification.
In Chapter 13 bankruptcy, a new loan payment amount is incorporated in to the Chapter 13 plan.
One of the biggest issues in the bankruptcy court’s mortgage modification mediation was efficient exchange of information and documents. To facilitate document exchange and communication between the bankruptcy debtor and the creditor the new SLM program uses an online portal that includes a standard loan modification application.
The program uses a Document Preparation Software to ensure that the debtor’s initial submission is accurate and complete. The creditor may request additional supporting documents and financial information. An online portal avoids creditors losing or misfiling documents submitted by mail which had been an issue with mortgage modification meditations.
The student loan modification program is available to debtors in both Chapter 7 and Chapter 13 bankruptcy. The program begins August 1, 2019, but it is the open to any debtor with an open case pending in the Middle District of Florida bankruptcy courts.
The program established the amount of $1,500 as a typically reasonable attorney fee payable to the debtor’s bankruptcy attorney for assisting an application for loan modification.