Bankruptcy is a federal legal process for declaring an inability of an individual or organization to pay its creditors. The United States Constitution authorizes the bankruptcy laws and federal laws govern all bankruptcy cases.
One stated purpose of the federal bankruptcy laws is to give the debtor a financial "fresh start." At the end of most cases the bankruptcy judge will discharge certain debts and release the debtor from personal liability.
The bankruptcy laws are meant to give the honest debtor a fresh start, but not a head start. Therefore, Congress has identified certain debts that cannot be discharged in a bankruptcy. Many debts that would ordinarily qualify for discharge may be determined as non-dischargeable if a debtor has committed a crime or fraud in acquiring the debt. Other debts are deemed generally non-dischargeable based on public policy reasons (like taxes or child support).
Generally, the following are non-dischargeable debts:
1. child support or alimony obligations, and debts considered in the nature of support;
2. student loans, unless repayment would cause you undue hardship;
3. criminal fines or restitution;
4. debts listed in a prior bankruptcy where debtor was denied a discharge;
5. recent income taxes less than three years past due; and
6. auto accident claims involving intoxication.
Additionally, there are circumstances which may make a debt non-dischargeable:
1. debts incurred on the basis of fraud;
2. debts from willful or malicious injury to another or another's property;
3. recent purchases with credit cards;
4. debts from larceny (theft), breach of trust or embezzlement; and
5. most federal, state and local taxes and any money borrowed on a credit card to pay those taxes.
All of the categories of non-dischargeable debts in bankruptcy have specific rules and exceptions and each situation has its own challenges. If you have a debt that may fall into a non-dischargeable category, discuss your situation with a qualified bankruptcy attorney and learn your options. Your attorney can provide options for managing, repaying, or discharging the debt.
Showing posts with label student loans. Show all posts
Showing posts with label student loans. Show all posts
Wednesday, May 12, 2010
Tuesday, October 13, 2009
Discharging Student Loans in Bankruptcy
Recently the House of Representatives Judiciary Subcommittee on Commercial and Administrative Law held a hearing to initiate legislation to change provisions of the federal bankruptcy law that give student loan lenders an advantage over other consumer loans. Current bankruptcy law provides that student loans are generally not dischargeable under any chapter of the bankruptcy code unless the debtor can show that repayment of the loan creates an "undue hardship." Unfortunately, Congress did not define "undue hardship" in the bankruptcy code, so this interpretation has been left to the individual bankruptcy court judges.
During the Committee hearing Rafael I. Pardo, an associate professor at the Seattle University School of Law who has studied the discharge of student loans in bankruptcy, challenged Congress “to clarify the undue hardship standard.” Many courts view "undue hardship" as a high bar that is only met by a showing of exceptional circumstances (like physical or mental disabilities, or poor or no future earning potential) that result in an inability to both repay the student loans and provide a minimum standard of living for the debtor and the debtor’s family. This is a very difficult burden for most debtors to meet, and consequently bars the discharge of student loans in most cases - even while other consumer debts like auto loans, credit cards, medical debts, mortgages, and even taxes are discharged in the debtor’s bankruptcy.
Consumer bankruptcy attorney Brett Weiss, who testified on behalf of the National Association of Consumer Bankruptcy Attorneys and the National Consumer Law Center, called the situation "unfair" when other consumer loans are forgiven in bankruptcy proceedings while student loans are not. As a result of these hearings, Rep. Steve Cohen (D-Tenn.) announced his plans to file legislation to “give private student loan borrowers more equitable treatment during the bankruptcy process.”
For the time being it remains extremely difficult to discharge student loans. However, there are other non-bankruptcy programs for debtors unable to repay their loans. In some cases debtors may qualify for reduced payments, deferment, forgiveness or cancellation. Chapter 13 bankruptcy can also provide a way to cure defaulted student loans, or pay them off during the bankruptcy. If you have student loan debt, discuss your situation and options with a qualified bankruptcy attorney.
Tuesday, March 31, 2009
Discharging Student Loan Debt in Bankruptcy
Can student loans be included in your bankruptcy? Yes, everyone you owe must be included in your bankruptcy. The real question is can student loans be discharged in a bankruptcy? The answer is probably not, but maybe. For cases filed after October 7, 1998, Student Loans are dischargeable only if you can prove that having to repay it would impose an "undue hardship" on you .
Cases filed prior to October 17, 2005, if the program under which your student loan is issued, insured, administered is a for-profit, private (non-government) entity, it may be dischargeable. However, if the program itself receives nonprofit funding by participation of nonprofit entities, the loan is not dischargeable in bankruptcy.
Student and educational loans can only be discharged in bankruptcy if the following can be proven at trial.
To obtain a discharge based on undue hardship you must prove all of the following:
1. That you cannot maintain, based on current income and expenses, a 'minimal' standard of living for yourself and your dependents if forced to repay the loans;
2. That additional circumstances exist indicating that this state of financial affairs is likely to persist for a significant portion of the repayment period of the student loans; and,
3. That you made good faith effort to repay the loans.
This does not just include making payments on the loans. It requires doing things over time such as making efforts to increase your income (which includes going back to school to get additional degrees or experience), consolidating loans with the Direct Loan Servicing Center, and other similar efforts.
Courts do have the authority to issue partial discharges of student loans, in cases where the debtor shows the ability to repay some, but not all, of the loans. All three of the above factors must be still be met not matter if it is partial or complete discharge of the student loan debt. It is very difficult to prove all the necessary elements for the student loan hardship discharge and thus it is very rare to discharge student loan debt.
For other alternatives to dealing with Student Loans, including income contingent repayment plans, and non-bankruptcy methods of canceling the debt, see http://studentaid.ed.gov/PORTALSWebApp/students/english/discharges.jsp?tab=repaying#content
Bankruptcy Attorney Erich M. Niederlehner, of Mobile, Alabama, Pensacola Florida & Fort Walton Beach, Florida provides qualitiy legal Bankruptcy services to the citizens of Escambia County Florida, Santa Rosa County Florida, Okaloosa County Florida, Walton County Florida, Mobile County Alabama, Baldwin County Alabama which includes but is not limited to the following cities:
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