Bankruptcy of Your Student Loans

Bankruptcy of Your Student Loans

Sunday, February 28, 2016

I MADE MY CASE BASED ON UNDUE HARDSHIP AND DISCHARGED MY $130,000.00 STUDENT LOAN DEBT

YES! 10 DAYS AGO THE U.S. BANKRUPTCY COURT NOTIFIED ME THAT THE DEPARTMENT OF EDUCATION "CONSENTED TO DISCHARGE"

It is a fact! My efforts and hard work were what made the difference. I am proof that 11 USC §523(a)(8) "undue hardship" still is a valid means for seeking and winning a full discharge within the U.S. Bankruptcy Court.

On February 18, 2016, the court filed the order signed by the Judge granting the Consent Order - dismissing my student loan debt.  Here is the long and short of that order for you to see:


Case 15-01167-RGM Doc 31 Filed 02/18/16 Entered 02/18/16 15:08:56

 CONSENT ORDER
THIS CAUSE is before the Court on the request of the Plaintiff, Richard Allan Precht ("Plaintiff"), and Defendant, the United States Department of Education ("DOE"). The Court being advised herein that the DOE agrees that Plaintiff’s loans held by DOE at issue in this adversary proceeding should be discharged in bankruptcy pursuant to the provisions of 11 U.S.C. §523(a)(8) , and that upon entry of such relief the Plaintiff seeks no further relief in this adversary proceeding. Accordingly, it is hereby ORDERED and ADJUDGED as follows:

1. The loans of Richard Allan Precht at issue in this adversary proceeding held by the United States Department of Education are HEREBY DISCHARGED in bankruptcy pursuant to 11 U.S.C. ¶ 523(a)(8).

2. The above-captioned adversary proceeding is hereby dismissed.

3. The clerk will mail a copy of this order, or give electronic notice of its entry, to the parties listed below.

Date: Feb 11 2016

/s/ Robert G. Mayer
______________________
HON. ROBERT G. MAYER




THIS SHOULD GIVE YOU HOPE!

If you are struggling with your federal student loans, there is hope for you.  But as I have said many times already, you have to work very hard to accomplish a discharge through the bankruptcy court.

I titled this blog "Undue Hardship - Poverty Required" because that is what I felt when I began to research what the term undue hardship meant, and just how one must prove undue hardship to a judge in a bankruptcy procedure.  My study of several hundred, perhaps a thousand, cases of debtors with student loans nearly discouraged me from pursuing a discharge!

But as I continued to research and read and re-read cases, I learned that there were many hundreds of people who were successful.  I also learned that there were hundreds who were not!

The thing that struck me the most was that there was no consistency!  Zero!  The fact remains today that every court that rules on a discharge of student debt, can decide the outcome for or against primarily on the conviction of the judge.

I say that because there remains a huge discrepancy in the way courts and judges have over the years, interpreted the meaning of undue hardship.  I wish I had the time to go into all the facts and details, but suffice it to say, that during my nearly one year of educating myself on the subject I discovered that the courts are left to decide what the term means and can - and have - decided cases based on undue hardship without a clear and direct interpretation of that clause.

One only has to do a quick search of USC 11§523(a)(8) in the web to see what I am talking about.  When you do you will learn that even the congress who wrote the language for what became the rules that prevented student loans from being discharged in bankruptcy, did not provide an interpretation of the phrase "undue hardship", but left it up to the individual courts to determine what constituted undue hardship.

When you consider the number of bankruptcy courts across the USA and the number of Judges there are, it is no wonder there has been great confusion, and great differences in the rulings for and against student loan debtors.

Take the word "undue" for example.  There are many definitions for that word.  The usage that congress assigned to it to describe the word hardship, probably is considered to be "beyond normal limits" that has synonyms of "excessive", "inordinate", and "unreasonable".

Hardship is another word with several meanings. One site I checked for the word hardship had these three key descriptors: 1) Something hard to endure 2) Something that causes or entails suffering and 3) A state of misfortune or affliction.

Interestingly the synonyms for "a state of misfortune of affliction" on that site are "adversity" and "hard knocks", both of which in many cases describe the state of affairs student loan debtors with no way out could relate to.  I was there.  

My life was one full of misfortune, afflictions, adversity, and I took a lot of hard knocks! And I will tell you that what I endured was way beyond normal limits, excessive, inordinate, and unreasonable to put it mildly!

So.... Just how did I win in court?

Yes I won a huge victory in court.  I won big mainly because I persisted in finding out what steps and actions were needed to get out from under that $130K debt.  Desperation drove and motivated me.  

Having both my social security and small federal retirement incomes being garnished to pay only a fraction of the ever increasing interest on my consolidated and defaulted loan was foolish.  There was no way I would ever pay it off; not on $1,200 a month, and being 67 years old with health issues and unable to work. 

After months of preparation, I took the 1st step required by the rules of bankruptcy to rid myself of this monster. The first thing one has to do is to file a consumer debt chapter in a U.S. Bankruptcy Court.  I had roughly $3,100.00 in unsecured debt that I was unable to pay. To bankrupt those debts, I filed a personal Chapter 7 with the local U.S. Bankruptcy Court.

Filing a Chapter is quite simple - and like I have said before this was my third personal bankruptcy in my life. I also helped a friend file a chapter 7 about two years ago.  It is not difficult and you do not need a lawyer so save yourself the money. You can also request a waiver of the filing fees and basically file a Bankruptcy Chapter for free.

All of the forms can be found online; many of them are fill in-the-blank PDF forms that you can print out and file with the court.  Just search online for the closest bankruptcy court to where you live.  You may find a "checklist" included which will help you in the process. Additionally, many courts have their own "local court rules" which you need to read and follow.  I found the local bankruptcy court extremely friendly and helpful.  Just be confident!

Once you fill out all the required forms, and have all the required records (i.e. bank statements, proofs of income, etc.), go to the clerk's office of the U.S. Bankruptcy Court in your locale, and have the clerk look over your forms, the clerk will tell you if you have done everything correctly. When you have it all together, you will file your documents with the clerk.

When listing your debts under "unsecured non-priority" you also list your student loan debts. However, those student loans WILL NOT be discharged under the Chapter!  What will happen is that when you attend a mandatory court hearing called the "Trustees Meeting" the trustee (a court appointed mediator) will tell you that under bankruptcy chapters you cannot get your student debts discharged!  This is where educating yourself comes into play!

If the opportunity presents itself, you advise the court or the trustee, that you understand that you cannot have your student loans discharged without filing an Adversary Proceeding and that you are prepared and ready to do so!

Remember I stated "So.... Just how did I win in court?"  I will tell you.  I won because I prepared a case before I filed my Chapter 7, and I spent months doing that preparation!

Before I filed my Chapter 7, I had already written my "complaint" the formal legal pleadings which you must make to prove "undue hardship" that constitutes what the court calls an Adversary Proceeding.  My rough definition of that term is you are "Adversely Affected by an Act of Another and Need Justice."  In this case you are filing a formal complaint against the U.S. Department of Education, and all holders of your Federal Student Loans (private loans are different).  The formal complaint is the Adversary Proceeding (AP).

Next time I will describe more details about what an Adversary Proceeding entails.  My AP was 56 pages long, 202 paragraphs.  It took me several weeks to write, but it proved to be the "winning ticket" to discharging close to $130,000.00 of student loan debt!

So until next time, please feel free to comment, I would love to hear from you.  I will also answer any questions.  If you want to receive notifications of when I post new articles you can provide your email address. Thanks!  Richard









  




Saturday, February 20, 2016

I HEARD I CAN BANKRUPT MY STUDENT LOANS - SO WHAT IS THIS "UNDUE HARDSHIP" STUFF?

OK... Let's learn about "Undue Hardship"

Last time here, I asked the question "do you have what it takes to bankrupt your student loans?" In the first part of that posting I gave a brief description of a Chapter 13 Bankruptcy and that under a Chapter 13, the court basically takes a look at your financial condition, and if you are a wage earner, the court will work with you to find ways to repay the debts, by having you develop a repayment plan. In that plan you agree to make installments to those creditors you owe over a period of 3 to 5 years.

Now that is all well and good if you are employed, and can realistically manage a budget and stick to the court-ordered repayment arrangements. But... what if you are unemployed or severely underemployed with debts and obligations that you have zero chance of keeping up with? 

What if you are sick, elderly, disabled, or homeless, or destitute?  Well... I know that sounds a bit drastic, but there are millions who are at or near that point of desperation. And millions who have student loans that they cannot pay now - or even in the future.  I was there!

But before we identify what constitutes Undue Hardship (according to the US Bankruptcy code), let me complete the descriptions of the different bankruptcy chapters so you can learn what they are and be able to choose which chapter to file so you can get a "fresh start" and perhaps, get out from under that student loan that is growing faster than weeds on a hot summer day.

OK here we go.  The U.S. Bankruptcy Code is organized into nine "chapters" (like a book). Six of the chapters are written specifically to provide bankruptcy relief in various forms to various types of debtors.  The code was originally written using odd numbered chapters to allow for later additions if they became necessary.  For example, in 1986, Chapter 12 was added which is a chapter to assist farmers and fishermen with debt issues.

The first few chapters, namely 1, 3, and 5 are provisional chapters which provide definitions and a framework around which the other Chapters are written.  The Chapters that deal with debt relief are Chapters 7, 9, 11, 12 (mentioned above), 13, and 15.

Most times we hear of a Chapter 7, 11 or 13.  A Chapter 7 is used for Individuals and Businesses seeking a complete liquidation of all debts.  Chapter 11 is used by businesses for reorganization.  Chapter 13 is for Individuals seeking reorganization (as I talked about above). A Chapter 9 bankruptcy is reserved for municipalities, and Chapter 15 is for Cross-border or International Bankruptcies.  To date those are the chapters available in the U.S. Bankruptcy Code.

For student loan debts the two chapters available are Chapter 7 and Chapter 13

Chapter 7 is the most commonly used venue to get a fresh start. In a Chapter 7, all of the debtor's property that is considered non-exempt (a term I will detail later), is "liquidated" and under the supervision of an appointed "trustee", any property or "proceeds" are distributed among the creditors.  Basically you turn over any assets that you do not "exempt" or as I say it "want to keep", and then those assets are used to settle your outstanding debts.  By turning over any non-exempt property and converting to cash, the debtor does so in an effort to gain relief of liability from pre-bankruptcy debts, clearing away old debts in the process.

In a Chapter 13 bankruptcy the object is to maintain the debtors assets while taking into account the current income and future income if certain debts can be reorganized.  It differs in that not all of the debtor's assets are liquidated and the debtor agrees to a repayment plan as part of the reorganization of their indebtedness.  The repayment plan is approved by the bankruptcy court and should that plan be unmanageable, the court may intervene and re-visit the case and or demand other remedies.

As for the discharge of student loans, those debts are are included in either chapter 7 or 13 and are listed along with the other "unsecured debts" on bankruptcy official form Schedule F "Creditors Holding Unsecured Non-Priority Claims".

As I have mentioned before, student loans are what are referred to as "unsecured debt", because there is no collateral or material behind the note. They are also a non-priority claim and differ from what is called a Priority claim. Priority claims are non-dischargeable unsecured debts that receive special treatment in bankruptcy. The most common types of priority claims include certain tax obligations, alimony, and child support. In Chapter 7 bankruptcy, these debts are paid before general unsecured claims.

Educational debts must be listed and included with your other non-priority unsecured claims, but that does not mean they will be included in the discharge!

Let me be very clear!  Just because you list your student loans on the correct form when you file your bankruptcy, DOES NOT MEAN those debts will be discharged under a chapter 7 or 11 Bankruptcy.  Those student loans are "EXEMPT from discharge" and "Exempt" means NOT INCLUDED.

The only way to bankrupt and discharge your student loans is by filing what is known as an ADVERSARY PROCEEDING aka A COMPLAINT!  In both Chapters you will be told by the court or an attorney that in order to discharge your student loan debt for educational use, you must file an Adversary Proceeding often then referred to as your "Complaint".

The Adversary Proceeding in the form of a complaint is filed against the holders of your loans who are the "defendants" and you are the Plaintiff, in what is a civil action or lawsuit against the loan holders.  What you are seeking is a discharge of your loans which are by bankruptcy rules "exempt from discharge" under 11 U.S.C. §523 (a).

I am going to write out the ruling in such a way here as to show that the bankruptcy code is stating that student loans CANNOT BE DISCHARGED, as that is what is says when you read it as an exemption and without reading the "exception to provision" which is found in subparagraph (8) and begins with the word "unless".  (You need to read my posting from Monday 2/15/2016, and you will understand)

OK here goes... (skip the lined out words)

Section 523. Exceptions to Discharge
(a) A discharge under Section 727, 1141, 1228(a), 1228(b), or 1328(b) of
this title does not discharge an individual debtor from any debt-
(8) unless excepting such debt from discharge under this paragraph would
impose an undue hardship on the debtor and the debtor's dependents, for –
(A)(i) an educational benefit overpayment or loan made, insured, or
guaranteed by a governmental unit, or made under any program funded in
whole or in part by a governmental unit or nonprofit institution; or
(ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or (B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;

Did you follow that?  (a) says: "does not discharge debtor from any debt "for" 
then it goes into (A)(i) "educational benefit"... (e.g) "LOAN" made or insured or guaranteed by a governmental unit, or program funded by (the government) or non-profit institution.
it goes on... "or (B) any other educational loan that is a qualified education loan"

THERE, that says it!  Your educational loan or government student loan is not eligible to be discharged in bankruptcy!

But... what about the words I drew a line through?

ahhh yes!  Those words are what we are looking for here! And the magic word "UNLESS" is in that subparagraph!

(a)(8) is how we get to the point of understanding what we need to base our Adversary Proceeding on.  And here we find those other magical words "UNDUE HARDSHIP".

Let's read (8) in its entirety: "unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents"

There you have it. The legalize is unwound from its awkwardness and what we read is that Student loans are not dischargeable "unless" (by) excepting (that) debt it imposes (causes) an undue hardship on the (person filing the bankruptcy) and (or to) the debtor's dependents".

Bear in mind, prior to 1978, student loans were not, and I repeat were not, exempt from bankruptcy!

Congress added this language to the Bankruptcy Code in 1978 to discourage excessive discharges of student loan obligations based on a few students who filed bankruptcy right after graduating. 

However, because Congress did not provide a specific definition of undue hardship in the Code, bankruptcy courts are left to make that determination on a per-case basis. 

And after decades the definition of undue hardship remains a nebulous term and remains open to interpretation, and courts have had to develop some forms of criteria to reach determination of undue hardship.  Several so-called "tests" were created by bankruptcy courts over the years, and there remains great controversy surrounding the application of these tests to grant discharges based on undue hardship.

Today we generally see the courts have embraced two of those tests across the country. One test is commonly known as the Brunner Test and it is a three-prong test.  The other is known as the Totality of Circumstances Test.  Depending on where you live, the court will most probably use one of these tests to weigh the evidence of undue hardship that you bring to the table. In a later post, I will describe these tests, I won my case under the 1987 Brunner Test - which has been a subject of great controversy over several decades.

Perhaps I will stop here?  As to understand what constitutes "undue hardship" we will need to look at those "tests" and the interpretation of those tests by the bankruptcy courts, which by the way include 94 Federal Judicial Districts organized into 12 Regional Circuits each of which has a Circuit Court of Appeals.

If that is not enough to make you wonder why there is no consistency in what determines undue hardship, then consider that these courts also have a number of judges in those courtrooms and they have complete discretion on how they rule?

Until next time, best regards, Richard

Oh... and please leave comments, sign up for email notifications and feel free to ask any questions, and address any corrections needed.  Thank you and God Bless America!





Monday, February 15, 2016

DO YOU HAVE WHAT IT TAKES TO BANKRUPT YOUR STUDENT LOANS?

LET'S TAKE A LOOK AT WHAT IS REQUIRED!


In my last blog, I mentioned that student loans cannot be discharged in bankruptcy.  That is true.  Yes, if you want to file bankruptcy like a personal consumer bankruptcy you have two options, a chapter 7 personal bankruptcy, and a chapter 13 also called the "wage earners plan".


Under a chapter 13 you agree to a "re-payment plan"  as the US Courts Website describes it  "A chapter 13 bankruptcy is also called a wage earner's plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. If the debtor's current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period "for cause." (1) If the debtor's current monthly income is greater than the applicable state median, the plan generally must be for five years. In no case may a plan provide for payments over a period longer than five years. 11 U.S.C. § 1322(d). During this time the law forbids creditors from starting or continuing collection efforts.


So let's say you have maxed out all your credit cards, you owe for a huge cell phone bill, are behind on payments for the Big Screen TV, your appliances, that 1st apartment's furniture, and you owe the doctor's and hospital for that newborn baby.  And on top of it all you owe on those student loans, and every day and night the collection companies keep your I-phone ringing out of your empty pocket!

At this point you are thinking what in the world can I do?  May I suggest that you first try and get some debt counseling?  But please, seek out local agencies that offer "free" (and I mean free!) help.  Many local communities have services available in the form of personal intervention or some type of classes.

Here in my location, there are several agencies who provide counseling and information. Prior to filing my bankruptcy, I called and made an appointment with Northern Virginia Legal Services.  As part of their services, I attended a group where an attorney discussed filing bankruptcy.  In fact, that agency even will assist debtors who cannot afford an attorney with all that is required to file and succeed in bankruptcy for a fixed-reduced fee.

In my situation, I went with the need to get information on filing bankruptcy and how I could go about including my student loans.  I knew there was an "exception" and I wanted to get a few answers about how to use that exception and get my $130,000.00 student loan debt discharged by the US Bankruptcy Court.

As the attorney went about describing the different chapters of bankruptcy and the types of debt that can be discharged, she made the statement "most unsecured debts can be written off in bankruptcy, except student loans" (I paraphrased her statement - but the message was clear), she like most lawyers will tell you that you CANNOT discharge your student loans by filing bankruptcy!

While I was tempted to speak up, I didn't.  However, within a few minutes another attendee in that meeting, asked about their student loan debt.  Again paraphrasing the lawyer: "I am sorry but student loans are not dischargeable under normal circumstances" Noting the frustration of that person and a couple of others, she went on to say, "student loans may be dischargeable under what is called 'undue hardship' but it is very difficult and we cannot help you with that, in fact I (personally), have never seen anyone get their student loans discharged".

Again I was tempted to speak up, but I held my tongue.  But then when the meeting was over, I approached the lawyer and told her my name, age and the fact that I was in the middle of filing my Adversary Proceeding under the undue hardship clause to seek a discharge on my student loan debt of $130k which was over 27 years old.  I said I had filed chapter 7's twice before in my life and this time I am going to attempt to get my loans discharged.  She stated "well we cannot help you, we do not have the resources for that, and good luck"

So there I was - being told no one could help me - AGAIN!  I had tried several avenues for help, every lawyer I contacted said they could not help - and I would hear the closing words, "I wish you luck with that".

Fortunately, I had done my homework prior to seeking legal assistance.  I had a pretty good idea that what I was hearing and going to hear from the legal eagles was what I expected; and that is they either one, do not know much about discharging student loan debts, or two they know that it can be a long and expensive process, and one which they want no part of.

You see, I had studied and researched the subject. Like in my previous blog, I found hundreds of articles about the subject, then I found keywords and phrases which helped to uncover bankruptcy cases where debtors had student loans and filed for discharge under the "exceptions" clause I learned to know as 11 U.S.C. §523(a)(8).  


Yes Virginia, there is a Santa Clause!



Let me describe as best I can, what you need to know about 11 U.S.C. §523.  As I and many lawyers have said you cannot discharge student loans in bankruptcy. And we are right, up to a point.  That point being "Unless".  As the old saying goes there is an exception to everything!

The "exception" is spelled out in the US Bankruptcy Code within Section 727.  Bankruptcy generally is available to individuals and businesses that are insolvent and need a "fresh start", and as far as history goes, bankruptcy goes back thousands of years.  When the debtor's prisons became filled up, the ruling party began granting bankruptcies (short version).
.
Under §727, the bankruptcy court named several types of debts that would not be allowed to be discharged, and the reasons to not allow such relief. (Bear in mind §727 is a section within the Chapter 7 bankruptcy rules).  So in a chapter 7 bankruptcy we see the following rules: 
(a) The court shall grant the debtor a discharge, unless - (1) the debtor is not an individual; (2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed - (A) property of the debtor, within one year before the date of the filing of the petition; or (B) property of the estate, after the date of the filing of the petition; (3) the debtor has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor's financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case; (4) the debtor knowingly and fraudulently, in or in connection with the case - (A) made a false oath or account; (B) presented or used a false claim; (C) gave, offered, received, or attempted to obtain money, property, or advantage, or a promise of money, property, or advantage, for acting or forbearing to act; or (D) withheld from an officer of the estate entitled to possession under this title, any recorded information, including books, documents, records, and papers, relating to the debtor's property or financial affairs; (5) the debtor has failed to explain satisfactorily, before determination of denial of discharge under this paragraph, any loss of assets or deficiency of assets to meet the debtor's liabilities; (6) the debtor has refused, in the case - (A) to obey any lawful order of the court, other than an order to respond to a material question or to testify; (B) on the ground of privilege against self-incrimination, to respond to a material question approved by the court or to testify, after the debtor has been granted immunity with respect to the matter concerning which such privilege was invoked; or (C) on a ground other than the properly invoked privilege against self-incrimination, to respond to a material question approved by the court or to testify; (7) the debtor has committed any act specified in paragraph (2), (3), (4), (5), or (6) of this subsection, on or within one year before the date of the filing of the petition, or during the case, in connection with another case, under this title or under the Bankruptcy Act, concerning an insider; (8) the debtor has been granted a discharge under this section, under section 1141 of this title, or under section 14, 371, or 476 of the Bankruptcy Act, in a case commenced within 8 years before the date of the filing of the petition; (9) the debtor has been granted a discharge under section 1228 or 1328 of this title, or under section 660 or 661 of the Bankruptcy Act, in a case commenced within six years before the date of the filing of the petition, unless payments under the plan in such case totaled at least - (A) 100 percent of the allowed unsecured claims in such case; or (B)(i) 70 percent of such claims; and (ii) the plan was proposed by the debtor in good faith, and was the debtor's best effort; (10) the court approves a written waiver of discharge executed by the debtor after the order for relief under this chapter; (11) after filing the petition, the debtor failed to complete an instructional course concerning personal financial management described in section 111, except that this paragraph shall not apply with respect to a debtor who is a person described in section 109(h)(4) or who resides in a district for which the United States trustee (or the bankruptcy administrator, if any) determines that the approved instructional courses are not adequate to service the additional individuals who would otherwise be required to complete such instructional courses under this section (The United States trustee (or the bankruptcy administrator, if any) who makes a determination described in this paragraph shall review such determination not later than 1 year after the date of such determination, and not less frequently than annually thereafter.); or (12) the court after notice and a hearing held not more than 10 days before the date of the entry of the order granting the discharge finds that there is reasonable cause to believe that - (A) section 522(q)(1) may be applicable to the debtor; and (B) there is pending any proceeding in which the debtor may be found guilty of a felony of the kind described in section 522(q)(1)(A) or liable for a debt of the kind described in section 522(q)(1)(B).


WOW!  Really?  Yes!   You do need to know most of what is here.  It does get better!  


What this section is basically saying is that in order to file a chapter 7 (in this case) you must be an individual (not a business etc.) and that you are not some deviant criminal with intentions of defrauding the court in pursuit of a discharge. (simplified it for me anyway)

All right moving down a bit in §727 we have this:

(b) Except as provided in section 523 of this title, a discharge under subsection (a) of this section discharges the debtor from all debt - 

See more at: http://codes.lp.findlaw.com/uscode/11/7/II/727#sthash.j44WWOLG.dpuf

OK... section 727 continues beyond what I pasted here, but I wanted to show a reference to section 523 that appears in section 727.  And §523 is where I want to move to next, as it is the relevant section that described the "exceptions to discharge-student loans"  And which is titled: "11 U.S.C. § 523 : US Code - Section 523: Exceptions to discharge.

Again we see the word "EXCEPTION".  So as not to confuse you I will limit the context of the rules within §523 and present the relevant subsections that you need to memorize.


The next step was to search for 11 USC 523 - Which I did and will detail below.




Here we are.  Under the first subtitle, namely small letter a shown as "(a)" reads...
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt 

There again we see "does not discharge..."   And again we see several subparagraphs under (a) that describe what is not dischargeable --- taxes, fraud, etc, etc.

But as you search down through all of this, you get to a numbered subparagraph number 8 shown as (8).  This is where I derived the rule 11 U.S.C. §523(a)(8).  What I will refer to as the Undue Hardship Provision or Undue Hardship Clause.



Subparagraph (8) is the educational loan paragraph of the bankruptcy code. This code basically forbids the discharge of student loans....



Here's what (8) reads : (8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents, for - (A)(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or (ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or (B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual; 

NOTE:
Subparagraph (8) is a bit confusing... because the wording is legal speak and actually reads "backwards" in my opinion.  The language here is saying "unless there is undue hardship, then an educational benefit overpayment (don't dwell on the word overpayment here) or LOAN MADE, INSURED, or GUARANTEED By a GOVERNMENTAL unit or NONPROFIT INSTITUTION OR (loans) MADE UNDER any program FUNDED in whole or part BY A GOVERNMENTAL unit or nonprofit institution, etc., etc., IS EXCEPTED FROM DISCHARGE! and "EXCEPTED FROM" means NOT ALLOWED!

Plain and simple sub paragraph (8) is stating that Student Loans are NOT Dischargeable in Bankruptcy, "unless excepting such debt would impose an undue hardship"

A simpler way to understand this is to put it this way... Under Chapter 7, section 727, (a) The court shall grant the debtor a discharge (of ALL debts that are not listed as "exceptions")... Then all the exceptions are listed, including student loan or debts for education. Here that exception is spelled out in subparagraph (b):

(b) Except as provided in section 523 of this title (which prohibits educational debts from being discharged), a discharge under subsection (a) of this section discharges the debtor from all debt ...     The exception for allowing student loan debts is described within section 523 in the introduction as subparagraph (8) (8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents

OK there it is... "the unless" did you catch it?  And the unless, is "imposing undue hardship".

I think this is a good place to stop for today?  Next time I will try and detail what the courts have defined as "imposing undue hardship".  


Until then, thanks for reading, and be sure to signup for email notifications, and feel free to ask questions, and as always your comments are welcomed!


Best regards, Bob 


References: http://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-13-bankruptcy-basics; and http://codes.lp.findlaw.com/uscode/11/7/II/727 and http://codes.lp.findlaw.com/uscode/11/5/II/523

Sunday, February 7, 2016

I CANNOT AFFORD A LAWYER, CAN I BANKRUPT MY STUDENT LOAN DEBT?

THE ANSWER IS YES!  HOWEVER.... 


Last time I asked the question if your student loan debt was driving you crazy.  Because that is where I was at, and I needed a way out from under the insanity.  Today I am going to continue to provide some key steps for those of you who have come to the end of your rope, and are looking for help.  

While I admit I do not have all the answers, I know what has worked for me and yes, I believe the possibility to succeed in stopping the insanity is there!  The real question is are you willing to make the effort - because I will tell you, it is NOT easy, as it is a lot of work and it will require a major chunk of time and yes a few hundred dollars.

As I stressed in the previous article here, you already have the skills required to pursue the elimination of your student loans.  Thinking someone else can do this for you is the wrong idea in my opinion.  If you are already under financial stress and the student loan debt is out of control and you cannot manage to eat and pay the rent because of your student loan, then you are ready!  

When the wolves are at the door, and you have nothing to feed them, 
it is time for defensive action!

Let's begin by discovering some defensive actions.  Education!  Yes, you need education. The best defensive weapon you are going to need to eliminate your student loan is your education.  "But wait... isn't that why I am in this boat?"

When you take the offensive position to eliminate the "debt monster" and you have made the decision to see this through, there can be no retreat.  The weapons you need are out here, and you just need to know where to look.

Re-read last week's post.  I provided some key words and phrases that I used (and continue to research), which give you the tools and allow you to understand the weapons you need in this battle.  Your main strategy for victory is only going to be developed by total preparation and understanding of your enemy.

Remember the creditors who you owe - those smiling folks who once were so nice, and so willing to lend you the money for college? Well those same folks have now become the enemy.  The battle is on and they want to destroy you, your credit, your future, and your life. The battlefield will eventually be in the courtroom and you will be there to make your stand.  And if you think you need an attorney, take caution (or should I say take cover?). I could not afford one, and as some have written you may be better off without one.  I know I was!


I began to prepare for the battle nearly a year ago.

My preparation for the battle began by doing an on-line search for "loan forgiveness".  There was a lot of buzz in the media about Obama's Loan Forgiveness plans.  Something I am totally appalled at, as it does and did nothing but help loan sharks and create more profits for sleazy lobbyists and underhanded politicians!   More on this another day....

OK I am back.  The research I did, led me to find there were millions just like me who were in terrible straits financially and millions who cannot afford their student loans and live a middle class life.  As I continued to investigate the issue, I found that many thousands of people in this predicament had filed for bankruptcy.

This led me to find the bankruptcy rules and procedures that dictate when and what can be included in a bankruptcy.  Student loans cannot be discharged under a Bankruptcy Chapter!

Did you read that?  But when you read further, there is a rule of EXCEPTION!  

The first place to begin is know what governs Bankruptcy.  You need a thorough understanding and knowledge of the history and the current laws of bankruptcy.  If you skip this step you will regret it later and perhaps be outflanked or ambushed?

Bankruptcy is provided under U.S. Law (code) and the starting point is getting to know where that code is found. Try doing a search for Bankruptcy Chapter 7. (There are the other chapters as well, 11, 12, and 13, and I suggest you get to know the differences)

As we are talking about discharging... There are basically two Code sections that affect dischargeability of claims in Chapter 7: section 727 and section 523.  First take a look at section 727. (by the way you can create the symbol § used here by holding down the Alt key while typing on the number pad 0167 - you will need this symbol when you write your case)

Under U.S.C. 11 §727 the lawmakers made certain debts "nondischargeable".  Those include such things as taxes, filing under false pretenses, misrepresentation of facts, fraud, etc,  (here is a full description of §727: https://www.law.cornell.edu/uscode/text/11/727)

There is an exception clause written into the United States Bankruptcy Code U.S.C. 11 §727. Take the time to read §727 in its entirety.  Note that rule begins with this statement under the subheading a): 
                   (a)The court shall grant the debtor a discharge, unless—

It then describes the "unless".  As you read down the list you eventually will come across a reference to section 523.  It is actually the small letter (b) which is the second main point in §727.
                  (b) Except as provided in section 523 of this title

OK... There it is §523.  Now we need to know what that "Exception" is that §727 is referring us to.  

Section 523 is the non-dischargeability clause for student loans (educational debt).

How about I stop here and go into a full description of what is known in the student loan debt circle as U.S.C. 11 §523 (a)(8) in my next blog?

Meanwhile, why not look at the links I included here?  I would also like to share with you two other great blog sites with helpful information, links and articles that I subscribe to, where I have made friends and have gotten a ton of useful information about dealing with debt and my student loans.


Please leave your comments, and any questions... I appreciate your comments, and I will be happy to try and answer your questions. 

Until next time... yours truly, Bob