Bankruptcy of Your Student Loans

Bankruptcy of Your Student Loans

Friday, April 22, 2016

CAN YOU PROVE UNDUE HARDSHIP? YES, BUT YOU NEED RECORDS!

STEP #8 – DOCUMENTATION


Just today I was reading one of my favorite blog sites “Get out of Debt Guy”, and someone wrote in for advice about getting a recent call about a 20-year old student loan which the person thought had long been forgotten, and for which they had stopped paying on.

While the person's question did not provide much detail and left the Get Out of Debt Guy with little to go on to provide good advice, my take was that the person needed to find out what was going on. And in my opinion they needed to do some research, find out who was calling them, and do some digging to find their records!

Which brings me to what I want to talk about today in the continuation of my discussion of some steps needed to discharge your student loans. Let's take a hard look at what documentation you need to discharge your student loans, from the point of bankruptcy and proving undue hardship.

At the point of my decision to do something about my student loan debt, I soon realized I was going to need some proof that I was never going to pay off the debt. I also realized that it was going to require a fair amount of work to come up with that proof. At first it seemed like an impossible task and that the deck was stacked against me by the Department of Education.

After all my loan was over 27-years old, and had grown out of control due to penalties and interest applied when I was no longer in a deferred status having been taken off of SSDI and in-voluntarily placed on straight Social Security. My loan was now nearly three times the amount I had originally borrowed and it was now due and the interest on that loan was being paid for under a garnishment offset by the Treasury Department.

I was in a bad place financially, and all I knew was I needed a way out. The way out meant I had to prove I could not ever pay the loan off, and that my situation was hopeless.

What I needed was documentation and records to back that up. Thus began a gathering of information. I hope by sharing what I needed, it will help someone here.

As I have stated before, in order to get out of debt and get rid of those student loans, you are going to have to file bankruptcy. Filing for bankruptcy requires you to fill out official forms, including a bankruptcy petition and a series of schedules that give the court an idea of your finances. In addition, you’ll submit documents that disclose the details of your financial affairs.

Whether you are filing for Chapter 7 or Chapter 13 bankruptcy, the documents you must file are usually the same, although guidelines and requirements may be different depending on the state and judicial district in which you live. Check with your bankruptcy clerk's office to make sure you are meeting your district’s requirements.

Chapter 7 Bankruptcy Documents

The bankruptcy courts require several documents. Here is a short list of the most common types of records that a Bankruptcy Chapter 7 requires:
  • Valid Proof of I.D. - Photo Identification Required – Most courts have security checks
  • Proof of Social Security Number – Generally a separate form is submitted w/chapter
  • Bank Statements – Checking and Savings accounts – probably the prior 6 months
  • Pay Stubs – Most courts require 6 months of pay stubs
    • If you’re employed, locate copies of your pay stubs from the six months prior to your bankruptcy. Also, secure copies of your last two W-2's. If you’re self-employed, a profit and loss statement (“P&L”) covering the six months prior to your bankruptcy, along with bank statements supporting the amounts on your P&L, will suffice.
  • Retirement Records (if applicable) – Social Security Account Statements, Others
  • Tax Records – Minimum of the prior year's filed tax returns - State and Federal
    • Locate copies of your tax returns or transcripts from at least the past two years. If you haven’t filed your taxes, you’ll either need to provide a valid reason for not filing, or you’ll be required to file your taxes and show proof that you did.
  • Property Valuations – if you own real property – or hold a mortgage or loan on same
    • If you own property, you need to show the amount of its value—either an online valuation, a broker’s price opinion, or a full appraisal is acceptable. You also need to submit a mortgage statement that includes your loan balance, deeds of trust, and proof that your home is insured.
  • Automobile Documentation
    • If you own a car, you must submit copies of your registration, proof of insurance, and information about how much your car is worth. If you’re still working on paying off a vehicle, submit a copy of your most recent auto loan statement.
  • Child Support or Alimony Documentation
    • If applicable, show proof of expenses such as child support or alimony.
  • Proof of Marriage or Divorce (may be required in some districts)
  • Bills and Loan Statements
  • Mailing Matrix” - A list of creditors, with addresses – (See local rules on format)
  • Statement of Compensation Paid to an Attorney – if applicable
    • Finally, you will need a statement disclosing compensation paid or to be paid to your bankruptcy petition preparer, if applicable.

Chapter 7 Bankruptcy Forms

Bankruptcy forms consist of lettered and numbered forms, some are statements and some are referred to as “schedules”. The U.S. Court website provides downloadable and most of the forms can be pre-filled on-line then printed out. Additionally, your local court may have additional forms which they require. You will need to submit the following Chapter 7 bankruptcy forms, available for download on the U.S. Courts website :
  • A voluntary petition, which includes names and addresses of all creditors.
  • Certificate of Completion of a Credit Counseling Course
  • Statement of current monthly income
  • Schedules of assets and liabilities
  • Schedules of current income and expenditures
  • Schedule of executory contracts and unexpired leases
  • Statement of financial affairs
  • Statement disclosing compensation paid (or to be paid) to your bankruptcy petition preparer
Discovered I had many records already!

So what did I have already? Well for starters I had statements that I got in the mail from both the Social Security Administration and my Federal Retirement agency which showed what was being withheld each pay period to pay a portion of the interest on my student debt. Now I admit I hate paperwork, and I was not really good about keeping stuff, but somehow, I had kept several years worth of these statements (most likely it was divine providence and not my doing as I am sure I did not think I would ever do anything with them years ago).

The other miracle I discovered was that even though I had recently moved and threw a ton of paper away at the local recycle bins, I still had in my possession some of my original student loan paperwork, including most of many receipts of money orders I had used to pay $90.00 a month for over three years towards my student loans.

I also had kept documentation of my Social Security Disability application along with other vital records regarding my medical conditions, and proof of payments from the time I was receiving SSDI, and other letters and correspondence related to my mental conditions and hospitalizations.

Other legal records, like my divorce papers (twice divorced here), and files that included my previous bankruptcies (twice before this last one) were what I found and were going to be part of my proofs! By some measure of God's grace I somehow had preserved and kept a lot of what I was going to use in proving my undue hardship case in bankruptcy number three.

I also learned that I could request records that I was missing or may need. 
 The internet age is amazing and I am now convinced that you can find anything you are looking for if you ask the right questions!

If you find you do not know your student loan history, try by doing a search on line. The link to see your loan history (for most Federal Loans) is: National Student Loan Data System for Students at https://www.nslds.ed.gov/nslds/nslds_SA/ When you are here, you can create an account (if you do not already have access to the site s information pages). “If you do not have an FSA ID, select the Create An FSA ID tab”.

When I logged into the FSA site today, I found all my loans still listed, but they NOW have a ZERO $ balance! Praise the Lord! Thanks to a full discharge under 11 U.S.C. §523(a)(8).

Make sure you copy the link(s) to this web site. I recommend keeping a separate file named student loan data hyper-links (or similar), you will need to go back over these sites several times during your case documentation and preparations.

My other method of getting records was to write to everyone! I wrote to Hospitals for my mental health records, I wrote to all of the loan servicers I knew I had dealings with and even to those I was not sure ever serviced my debt. I wrote to the Social Security Administration, the agency in charge of collecting the garnishments of my income and to several agencies who are part of the Department of Education.

When you draft a letter, write it so you can mail the same letter to several agencies and only have to edit the mailing address. Ask specific questions asking for details about your loan balances, payments made, interest rates, fees and penalties, and any other pertinent information relevant to your specific situation.

Keep a copy of the letters in a separate folder with a main folder. 
 Example would be “letters to lenders” within “my bankruptcy” folder.

When you get a reply from anyone, keep the paper copy but also “scan it” into your computer.
From now until you file your case every document is an important record and you will eventually include them as part of your case as “exhibits” within your Adversary Proceeding.

Records for an Adversary Proceeding

Next time I will continue with what other records and documentation you may need when you file an Adversary Proceeding. The documents to support your “complaint” are what the court calls “exhibits”. Exhibits must be submitted to the court according to their local rules and format. The guidelines for how to prepare and present exhibits is covered under a federal statute, but most courts will provide a written guideline as part of their local rules.

I had a list of 25 Exhibits in my case! The number of 8.5 by 11 inch pages was over 1,200 pages, and those 25 exhibits filled two 3-inch binders! The court required I submit the original and two copies and I also needed to give a copy to each of the defendants! That is a ton of paper and copying. And yes… it cost me money to provide the exhibits but I would not have won my case otherwise! More on this latter – but I was prepared and avoided the process called “discovery” and also won without a pretrial hearing or having to present my case in a protracted trial --- All because I had all of my documentation BEFORE I filed my case!

Until next time, begin to think about the documentation you have, and start to gather it into a secure place. I purchased several manila file folders and labeled them so I could easily find what I needed when the time came to pull all of the records together. I also scanned each document into a computer file. In my adversary proceeding, the defense attorney was willing to accept a thumb drive with all of my exhibits which where saved as PDF documentation. Having the U.S. Attorney accept a thumb drive saved me the cost of another set of three ring binders, and the cost of copying over 1,200 pages at the copy center.

Thanks for reading along. If you have any questions or comments please feel free to post them here. I will be happy to hear from you and to answer any questions or concerns.

Blessings, Richard Allan Precht



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