It’s no secret that student loan debt is a widespread problem within the United States. With an estimated 44 million Americans owing $1.5 trillion in student loan debt, many Americans are looking for a way out and are seeking relief from surmountable debt. But as a result of Clinton-era legislation, bankruptcy doesn’t always provide relief to student loan debtors. Thankfully, a new Florida student loan program is designed to address this problem, and give debtors with student loan debt more options for relief in bankruptcy. We’ll explore more information about this new student loan repayment plan, and let you in on what you should know if you are a student loan debtor interested in bankruptcy.
How Are Student Loans Treated Under Current Bankruptcy Law?
Prior to the legislation changes in 1998, student borrowers could potentially discharge student loans if they had been in repayment for seven years, notwithstanding the undue hardship test. Today, student loan debt in bankruptcy is a bit more complex and requires an understanding of the Brunner Test.
Since Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, it’s become much more difficult to get federal or private student loans discharged in bankruptcy when compared to other types of debt. They can, however, still be discharged if the borrower can prove the loan causes undue hardship under the Brunner Test. This legal precedent is based on a 1987 federal court decision, and often serves as the benchmark for determinations of bankruptcy and student loans. The three aspects of the Brunner test dictate that you must prove:
- You can’t maintain a minimal standard of living for yourself and your dependents based on your current income and expenses.
- Your financial situation isn’t likely to change during your loan’s term.
- You’ve made good faith efforts to repay the loan.
How Does the New Student Loan Repayment Program Work?
As you can imagine, many student loan debtors are unable to pass the Brunner Test in order to get student loans discharged (especially in a chapter 13 bankruptcy case). The new student loan management (SLM) program doesn’t overrule this precedent—which would make discharges easier—but it is instead designed to help provide more repayment options to bankruptcy debtors.
The SLM program is open to any debtor who has an eligible student loan and a case pending before the United States Bankruptcy Court for the Middle District of Florida. As a part of this new program, debtors and student loan creditors use a dedicated portal designed to facilitate open lines of communication between both parties. Both parties are encouraged to explore student loan repayment options and to modify agreements or payment amounts as needed.
Within 14 days of the date when the creditor and debtor conclude the SLM process, the debtor simply files a notice of IDR plan that indicates the repayment amount agreed upon by the parties with the court. In the event that the parties do not reach an agreed-upon student loan repayment option plan, a notice of no resolution must be filed with the court.
IDR plans under the new SLM program are also available in chapter 13 bankruptcy cases, with debtors being eligible to file an amended Chapter 13 Plan to include the IDR Payment.
Helping You with Student Loan Debt in Jacksonville, FL
Being overwhelmed by student loan debt that seems insurmountable is not an easy place to be. If you are in student loan debt and are also considering bankruptcy, Florida’s new SLM program can help you by offering repayment that is tailored to your financial situation. If you are seeking debt relief, it’s important to learn about your options and not give up hope. At Parker & DuFresne, we specialize in bankruptcy law, and our goal is to get clients across Northeast Florida back on the road to financial stability. We approach your situation with compassion, and through a thorough consultation, we’ll help you determine if bankruptcy is the right solution for you. Contact our offices today to schedule a consultation and learn more about your options for student loan repayment!