In a recent Montana bankruptcy court ruling, does not prohibit creditors from applying Chapter 13 plan payments to outstanding postpetition interest prior to paying down the principal balance. Accordingly, where the debtors’ confirmed Chapter 13 plan did not modify the contractual rights of the debtors’ student loan creditor, the creditor did not violate the plan by applying payments received from the Chapter 13 trustee first to prepetition and postpetition interest, in accordance with federal regulations, prior to paying down the principal balance of the debtors’ student loan debts.
Over the term of the plan, payments on each student loan debt that were greater than the principal balance of each debt on the petition date. As a result, the debtor were left with substantial remaining student loan debts.
In re Olson, 592 B.R. 857 (Bankr. D. Mont., Oct. 26, 2018)