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I recently received this email from a prospective client (“Jane”) seeking to have her student loans discharged in bankruptcy. Do you see the problems with this case?
I am permanently disabled due to cognitive decline resulting from a craniotomy to repair one of three aneurysms. I also suffer from back pain, anxiety, depression and panic attacks. In addition to my 2012 brain and gallbladder surgeries, I underwent back surgery in 2011 and two foot surgeries in 2010, and due to complications from my back surgery I have not been able to return to work. . I was very recently approved for disability retirement after 25 years as an employee with the federal government. I also receive SSI. I filed a chapter 7 in 2008 and am unsure what my options are in regard to having my student loans forgiven. I am seeking a full discharge.
Let’s start with the most immediate problem – currently, Jane’s eligibility to file bankruptcy. Under Bankruptcy Code Section 727(a)(8), Jane is not eligible to file Chapter 7 for eight years after previously filing a Chapter 7 1. Depending on when in 2008 she filed, she would have to wait until at least 2016 before filing a second case.Assuming for sake of argument that Jane was eligible to file Chapter 7, a practical problem she would face using bankruptcy to discharge her student loans would be that of cost. Bankruptcy Code Section 523(a)(8) says that student loans are not dischargeable in bankruptcy unless the debtor can show that not discharging them would constitute undue hardship.In defining undue hardship, bankruptcy judges have come to rely on an analysis set out in a 2nd Circuit case called Brunner vs. New York State Higher Education Services Corp. The Brunner test considers three factors to determine whether student loans can be discharged in bankruptcy:
- has the debtor made a good faith effort to repay his loans
- based on current income and expenses, can the debtor maintain for himself and his family a minimal standard of living if forced to pay his loans; and
- are the debtor’s financial circumstances likely to remain during a significant portion of the student loan repayment period
Based on what Jane writes, I think she would have a reasonable argument that she meets all three elements of the Brunner test, although in general bankruptcy judges have been reluctant to discharge student loans. Regardless, Jane would have the burden of filing a lawsuit in bankruptcy court to put the discharge issue before the judge. Bankruptcy litigation is not cheap – it is likely that the cost of this type of litigation could reach $5,000.I think that there are better options than bankruptcy for Jane.First, she has the option of doing nothing. If Jane’s only source of income is SSI and she has no assets, she is essentially judgment proof. SSI (which is the welfare type of disability) may not be garnished by anyone, even the Department of Education. Jane may end up with judgments filed against her but those judgments are uncollectible and will remain so unless her life circumstances change dramatically.Second, if Jane’s student loans are federally issued or federally guaranteed, she can apply for loan forgiveness based on disability 2. The Department of Education has recently changed its rules regarding disability forgiveness and Jane’s SSI disability determination may be enough to convince the government to forgive her loans.Third, if Jane’s loans are federally issued or guaranteed, she could enter an income based repayment plan. Assuming her income remains low, the income based repayment plan formula would likely call for a zero dollar payment. At the end of the repayment term (usually 20 years), the loans would be deemed satisfied and Jane’s liability would end.So, Jane has a variety of options and based on the information at hand bankruptcy would be the least desireable.
- assuming that the previous Chapter 7 resulted in a discharge ↩
- Disability forgiveness does not generally apply to private student loans. ↩
The post Bankruptcy Often the Least Desireable Option to Eliminate Student Loan Debt appeared first on theBKBlog.
I recently received this email from a prospective client (“Jane”) seeking to have her student loans discharged in bankruptcy. Do you see the problems with this case?
I am permanently disabled due to cognitive decline resulting from a craniotomy to repair one of three aneurysms. I also suffer from back pain, anxiety, depression and panic attacks. In addition to my 2012 brain and gallbladder surgeries, I underwent back surgery in 2011 and two foot surgeries in 2010, and due to complications from my back surgery I have not been able to return to work. . I was very recently approved for disability retirement after 25 years as an employee with the federal government. I also receive SSI. I filed a chapter 7 in 2008 and am unsure what my options are in regard to having my student loans forgiven. I am seeking a full discharge.
Let’s start with the most immediate problem – currently, Jane’s eligibility to file bankruptcy. Under Bankruptcy Code Section 727(a)(8), Jane is not eligible to file Chapter 7 for eight years after previously filing a Chapter 7 1. Depending on when in 2008 she filed, she would have to wait until at least 2016 before filing a second case.Assuming for sake of argument that Jane was eligible to file Chapter 7, a practical problem she would face using bankruptcy to discharge her student loans would be that of cost. Bankruptcy Code Section 523(a)(8) says that student loans are not dischargeable in bankruptcy unless the debtor can show that not discharging them would constitute undue hardship.In defining undue hardship, bankruptcy judges have come to rely on an analysis set out in a 2nd Circuit case called Brunner vs. New York State Higher Education Services Corp. The Brunner test considers three factors to determine whether student loans can be discharged in bankruptcy:
- has the debtor made a good faith effort to repay his loans
- based on current income and expenses, can the debtor maintain for himself and his family a minimal standard of living if forced to pay his loans; and
- are the debtor’s financial circumstances likely to remain during a significant portion of the student loan repayment period
Based on what Jane writes, I think she would have a reasonable argument that she meets all three elements of the Brunner test, although in general bankruptcy judges have been reluctant to discharge student loans. Regardless, Jane would have the burden of filing a lawsuit in bankruptcy court to put the discharge issue before the judge. Bankruptcy litigation is not cheap – it is likely that the cost of this type of litigation could reach $5,000.I think that there are better options than bankruptcy for Jane.First, she has the option of doing nothing. If Jane’s only source of income is SSI and she has no assets, she is essentially judgment proof. SSI (which is the welfare type of disability) may not be garnished by anyone, even the Department of Education. Jane may end up with judgments filed against her but those judgments are uncollectible and will remain so unless her life circumstances change dramatically.Second, if Jane’s student loans are federally issued or federally guaranteed, she can apply for loan forgiveness based on disability 2. The Department of Education has recently changed its rules regarding disability forgiveness and Jane’s SSI disability determination may be enough to convince the government to forgive her loans.Third, if Jane’s loans are federally issued or guaranteed, she could enter an income based repayment plan. Assuming her income remains low, the income based repayment plan formula would likely call for a zero dollar payment. At the end of the repayment term (usually 20 years), the loans would be deemed satisfied and Jane’s liability would end.So, Jane has a variety of options and based on the information at hand bankruptcy would be the least desireable.
- assuming that the previous Chapter 7 resulted in a discharge ↩
- Disability forgiveness does not generally apply to private student loans. ↩
The post Bankruptcy Often the Least Desireable Option to Eliminate Student Loan Debt appeared first on theBKBlog.
Section 110 of the United States Bankruptcy Code provides that a non-attorney can assist in the preparation of the bankruptcy petition. However, as an Inkster, Michigan man just learned (the hard way), the Bankruptcy Code places numerous requirements on bankruptcy petition preparers and subjects those who do not comply to substantial penalties.
On Tuesday, February 25, Derrick Hills of Inkster was sentenced by U.S. District Court Judge Sean F. Cox to 46 months in prison after being convicted by a jury in September of five counts of criminal contempt. The contempt proceedings stemmed from repeated violations of orders issued by U.S. Bankruptcy Judge Steven Rhodes from 2007 to 2009. According to a press release issued by the U.S. Attorney's Office following Hills' conviction at trial:
The evidence presented at trial showed that Hills had acted as a bankruptcy petition preparer since 2007, assisting people in filing for bankruptcy. Hills continued to act as a bankruptcy petition preparer despite five bankruptcy court orders issued by Bankruptcy Judge Steven Rhodes, permanently enjoining Hills from doing so for various non-compliance with bankruptcy rules and complications caused by his acting in the capacity of a bankruptcy petition preparer. Hills assisted individuals with consumer debts in preparing and filing their Chapter 7 bankruptcy paperwork. However, his actions went well beyond what was allowed by law and clearly violated Judge Rhodes Orders.
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Tags: Chapter 7, Did you Know?, Eastern District of Michigan
You Can Protect Most Property You can file bankruptcy and protect a certain amount of personal property. If you are filing a chapter 7 bankruptcy, then you have certain exemption amounts under Illinois law that allows you to protect a certain amount of property. For example, you can protect up to $15,000 worth of equity+ Read MoreThe post Can I protect My Property And Still File Bankruptcy? appeared first on David M. Siegel.
Being honest during your bankruptcy can make the filing process easier to complete with increased chances of getting the outcome you want. For many debtors this includes discharge, eliminating or wiping out debt. You may think things are complete upon being granted a discharge of debts, but if you were not honest during proceedings your […]
Bringing you the most up-to-date news, tips and blogs throughout the web. Here’s your Bankruptcy Update for February 27, 2014 Twinkies bankruptcy raises specter of U.S. pension fund failures Renzi under pressure as city of Rome risks bankruptcy Detroit uses stick and carrot to sell bankruptcy plan
Oksana Grigorieva, Mel Gibson’s ex and mother of Gibson’s child, filed Chapter 13 bankruptcy in California. Grigorieva and Gibson went through an explosive child custody war in which she was awarded hundreds of thousands of dollars. But recently she claims she has fallen on hard times and only has $10 to her name. According to […]
On June 27, 2012, the Florida Second District Court of Appeals issued its decision in Geraci v. Ems, 93 So. 3d 384 (Fla. 2nd DCA 2012). The issue before the Court was whether a person's long-term leasehold interest in his condominium could qualify as a "homestead" exempt from forced sale under article X, section 4 of the Florida Constitution. The lower Court held that it could not qualify as a homestead as it was not a fee simple interest. The Court of Appeals reversed and held that such a condominium may qualify as a homestead.
The Court of Appeals explained that article X, section 4 of the Florida Constitution does not distinguish between the different kinds of ownership interests that are entitled to the homestead exemption against forced sale. Cutler v. Cutler, 994 So. 2d 341, 344 (Fla. 3d DCA 2008). The Court reviewed that the Florida Supreme Court "has long since adopted the general rule that a fee simple estate is not necessary to this exemption." Bessemer Props., Inc. v. Gamble, 158 Fla. 38, 27 So. 2d 832, 833 (1946). The Court further stated that any beneficial interest in land" may entitle its owner to the homestead exemption. In determining a homestead, the Court noted that a court must instead focus on the debtor's intent to make the property his homestead and his actual use of the property as his principal and primary residence.
The Court held that when a lessee's interest in a leasehold estate includes the right to use and occupy the premises for a long-term and the lessee uses the property as his principal and exclusive residence, such an interest is entitled to the Florida homestead exemption from forced sale.
(305) 891-4055 - Jordan E. Bublick is a Miami Bankruptcy Lawyer with over 25 years of experience in filing Chapter 13 and Chapter 7 Bankrkuptcy Cases.
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