Brenner Spiller & Archer

Chapter 13 Bankruptcy and its Impact on Student Loan Forgiveness through Income-Driven Repayment Plans

Student Loan Forgiveness paperwork on a desk

Understanding Income-Driven Repayment Plan Forgiveness:

Federal student loan borrowers have the option of choosing an income-driven
repayment plan to manage their debt. This plan calculates your monthly payment based
on your income and family size, potentially reducing it to as low as $0 per month.
Typically, these payments are a percentage of your discretionary income. You must
annually update your income and family size with your loan servicer. At the end of your
repayment term under an income-driven plan, any remaining balance is forgiven.

Credit Towards Income-Driven Repayment Plan Forgiveness from Chapter 13 Bankruptcy:

Starting July 1, 2024, a new Department of Education regulation will alter how income-
driven repayment plans interact with Chapter 13 bankruptcy proceedings. This
regulation credits debtors with one month of loan forgiveness for every required
payment made under a confirmed Chapter 13 plan.

According to the new 34 C.F.R. § 685.209(k)(4)(iv)(K) regulation, a borrower earns
forgiveness credit by deferring or forbearing monthly payments through a bankruptcy
forbearance after July 1, 2024, provided the borrower meets the required Chapter 13
plan payments. This means that each Chapter 13 plan payment made earns a debtor a
month of credit towards income-driven repayment forgiveness, regardless of actual
income-driven repayment contributions or Department of Education involvement in the
bankruptcy.

For instance, if a debtor completes 24 payments in a 60-month confirmed plan but the
case is dismissed without discharge in month 30, the debtor still earns 24 months of
forgiveness credit under the regulation. While enrolling in an income-driven repayment
plan isn’t mandatory to earn this credit, doing so before or immediately after bankruptcy
is advisable.

The Department of Education will credit these months towards forgiveness upon
receiving notification of the required bankruptcy payments.

Steps to Ensure Credit Towards Forgiveness Post-Bankruptcy:

Upon concluding each bankruptcy case, the Chapter 13 Trustee will submit a final report
and accounting. This report should be forwarded to the Department of Education to
validate the credit for bankruptcy payments towards an income-driven repayment plan.
After bankruptcy closure, borrowers must continue making income-driven repayments to
maintain eligibility for forgiveness and re-certify income and family size annually to the
servicer of the loans.

For additional information on this topic, contact our law firm and speak with Attorney Andrew Archer or call us directly at 856-963-5000.