Bankruptcy of Your Student Loans

Bankruptcy of Your Student Loans

Friday, March 30, 2018

BANKRUPTCY OF YOUR STUDENT LOAN -- IS IT POSSIBLE?

BANKRUPTCY 101


My previous post here dealt with providing answers to some questions I had received from a fellow in California who was in the process of deciding if he should file Bankruptcy and if he could include his student loans.  His questions and the answers I gave were useful in some ways, but I admit it was just the tip of the iceberg and may not have provided the uninformed student loan debtor enough to make that decision for themselves. You can read post here: www.unduehardship-povertyrequired.com/2018/03/q-on-bankruptcy-of-student-loans.html

"ANSWER THIS, SHOULD I FILE BANKRUPTCY?"

This is the number one question you MUST ask yourself if you are in financial trouble. On the other hand it is also the most difficult question for someone else to answer for you!  The factors involved in the decision to file Bankruptcy are nearly too vast to even go into in this type of format - and for me to try, would be an exercise in futility!  However, let me offer you the best advice I can muster -- Do your research and learn everything you can about it 1st.

"HOW DO I FIND THAT INFORMATION?"

When trying to answer the question whether or not Bankruptcy is the answer to your financial situation, you need to only know one thing -- the internet has the answers! 
This can be proven very quickly, and you already have the tool in front of you - Your PC.
In example, just a minute ago, I highlighted and copied the heading in the previous paragraph "Answer this, Should I file Bankruptcy?" Then I pasted into the search bar, and Viola!  I got a whole list of places to look at. 

Granted, many of those links will be a website for Bankruptcy Lawyers, but at least some of them provide you with a series of questions to help guide your decision whether or not you need to consider filing a Bankruptcy.  Just to show you what I mean, here is a link to the first page I clicked on after I performed my web search using the search engine on my PC.

Another quick and easy web search on "What is Bankruptcy" provided this link: 

By my listing just these two links which literally took me a mere few seconds to find, you can see how easy it is to find basic information on the topic of Bankruptcy! Just try a search!

GLAD YOU ARE HERE!

If you are here reading this, it is probably because you found this site looking for help with your debts which most probably include loans to finance your education or the education of a child?  My blog is written to try and provide some limited help and information on the topic of dealing with student loan debts, based on my success in being able to have my loans fully discharged in a Federal Bankruptcy Court.  My own PERSONAL Bankruptcy was the culmination of years of struggle and seeing no end to the ever increasing amount demanded by the Department of Education and the collection agents they use to demand your money.

TYPES OF (PERSONAL) BANKRUPTCY

In my own Personal Bankruptcy (BR), I filed a Chapter 7 Bankruptcy.  Chapter 7 is what I would recommend based on the facts that Chapter 7 bankruptcy protection allows debtors to get rid of most of their debts and start over with a clean slate, or as the law implies a "Fresh Start".  

A Chapter 7 is an major decision, especially for those who have property and other holdings as you may be forced to sell those in order to pay the debtors if they get involved. A Chapter 7, is also called "liquidation" or "straight bankruptcy," and in the BR process, your debtor's assets are sold, those creditors receive payment, and only then are you free from your debts. Again ... Make sure you read all the details on a Chapter 7, again there's lots of good help here:   http://bankruptcy.findlaw.com/chapter-7.html

What is the other PERSONAL type of Bankruptcy?

There is also a Chapter 13 Bankruptcy for Individuals. Do not confuse this with a Chapter 11 Bankruptcy which is for Commercial or Business Bankruptcy filing.

A Chapter 13 BR is used by debtors whose income exceeds the limits of a Chapter 7, and is known as a reorganization bankruptcy. Filers of a Chapter 13 choose to hold onto certain property instead of selling off all relevant assets to pay creditors.  Under a Chapter 13, filers are required to agree to set up a re-payment plan using their income to gradually pay-off the debts, typically under a three or five year plan. The Bankruptcy Court 'monitors' the re-payment of the debts -- and if you fall behind, you may endure more court proceedings.
Make sure you read all about a Chapter 13 -- and learn the uses of a Chapter 7 vs Chapter 13. Again there is some great information here: http://bankruptcy.findlaw.com/chapter-13/chapter-13-reorganization-bankruptcy.html

"CAN I GET RID OF MY STUDENT LOANS?"

VERY GOOD QUESTION!  THE ANSWER IS NO! AND THEN THE ANSWER IS YES!

If I had a thousand dollars for every time I heard a lawyer tell me that I could NOT get my loans discharged in a Bankruptcy, I could have a great vacation! Hmm.. an Island VACA?

Seriously, if you asked a lawyer - and even a so-called Bankruptcy Lawyer - you would most likely be told that you can't get rid of your student loan debt by filing a personal bankruptcy! The fact is, that most attorneys say that for one of two reasons - Number One reason is -because that is what they were told -- And Number Two -- (in my opinion here), is that they just don't want to do the massive amount of work it takes to file the required legal case!

"FACTS"

The FACTS are that YES student loans can and are dischargeable in Bankruptcy!

As in everything in life there are "EXCEPTIONS"! The law does have provisions for the debt incurred to get an education to be discharged in both a Chapter 7 and a Chapter 13 BR.  This provision is known as the "Undue Hardship Clause" (or Undue Hardship Exception).

In brief, here is the "statute" that allows for student loans to be discharged by a Bankruptcy proceeding: https://www.law.cornell.edu/uscode/text/11/523

OK I know... it looks too much like "LEGALEEZE" ...  But let me help you out! In regards to what this all means, let me explain it as best I can.  Under the United States Bankruptcy Code (e.g. the law), the statute falls under USC (United States Code). In this case it is found in Title 11 (think of the word Title as a chapter in a big book).  Under Title 11 we find the listing for Bankruptcy which is sub-titled 523 (in laymen's terms it is a paragraph number). In fact this symbol § is the symbol for paragraph!  [NOTE: You can recreate this symbol on your keyboard by holding down the ALT Key and typing 0167]. §

Under this title and paragraph there are many subordinate sections and  sub-paragraphs. Drill down until you come to sub-section (a).  Then look under (a) for sub-para (8).

This is where you will find the "EXCEPTION TO DISCHARGE" for Education Loans

So then the full indexing of the code for the student loan "EXCEPTION" would be like this: 11 USC §523(a)(8).

Based on the above here is what "(a)" says: (a) A discharge under section 72711411228(a)1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—

Note the wording in (a) it says: "under .... this title DOES NOT DISCHARGE"  (However... there is more below!)

Scrolling down and finding sub-para (8), is where the "exception" is described.  Here is what it says: And I quote: 

"(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..."

Let me help clarify what you are reading... 

First off, this reads like it is written backwards!  And I agree!   The way to understand this is the code is stating that many things cannot be included in a Bankruptcy (things like taxes and stuff that are illegal -- you get the idea). The list is long about all the debts that can't be discharged -- but within this long list we get down to where Student Loan Debt is listed as NOT ALLOWED to be discharged! 

WAIT!  But I thought you said Student Loans CAN BE DISCHARGED?

As I wrote above... THE ANSWER IS NO! AND THEN THE ANSWER IS YES!

And as I also said above... "As in everything in life there are "EXCEPTIONS"! "
Take a closer look at the code.  Re-read what it says at (8)
(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents,

Did you notice anything...?  I left off the small three letter word after the comma ??  That word is "for"  So follow on down what is the "for" for?

Looking down --- Under big letter (A) we see two more sub-scripts: (i) and (ii)  Here we have definitions of what that "for" is for!  Check it out... "for"...
(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;



There!  You see it?  It is saying it like this... "We can't let you discharge an education debt, "unless"  (and the unless is "an exception" which is defined as one in which) "such debt would impose an undue hardship on the debtor and the debtor's dependants".



Then the code lists the type of Educational Debts that CAN BE DISCHARGED IF THERE IS UNDUE HARDSHIP PROVEN (this is where most lawyers will draw the line to help you!)
There is one more related sub-para listed in this section, and that is big letter (B).  At the end of the sub-para (ii), I intentionally again left off the final two letter word "Or" Did you catch that?  (Just seeing if you are detail person -- LOL)

After the word stipend, there is a semi colon and then the word "or" which is intended to lead you to big letter (B) the next sub-para in this section under (a) (8)  Here is what it says:
"(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..."

Rather than take the time to go into what all (B) is referring to, let me just say that it is pointing out that there are definitions of educational loans in the IRS codes, and for the purposes of explaining what "is a qualified education loan", for this article we are going to assume that your loan falls into the qualified category (perhaps I can talk about this in a later article - to define what is - and what is not  - a qualified education loan?)

SUMMARY OF TODAY'S ARTICLE

My goal today was to offer a primer on the topic of Bankruptcy.  I admit it did not nor was it intended to cover every aspect of bankruptcy.  I felt moved to expand the article into talking about the issue of student loan debt and bankruptcy - as that is what I used bankruptcy for. 

But first, I want to provide the following disclaimer to the readers: Let me be clear, I cannot provide anyone legal advice, I am not an attorney, I cannot give you legal advice.  All of the information I provided here is readily available via the internet for anyone to discover. 

You may be well served to contact an attorney for legal counsel if you are able to.  Some law firms do offer a free initial council service.  My experience has been that few if any attorney firms will offer free legal services to take your student loan case all the way through the court and few attorneys have experience in the Adversary Proceeding process regarding proving Undue Hardship.  Most are reluctant to do this kind of litigation and for most debtors they cannot afford the costs of hiring an attorney if they're already at the point of insolvency

My limited help should be seen as the impetus for those who are unable to continue financially to pay student loans to dig deeper into finding solutions. To that end, I present these articles hoping to encourage readers based on my own success in winning a full discharge of my Federal Student Loan Debt in 2016.  I acted as my own attorney Pro Se!

In regards to further research on the topic of Bankruptcy, and student loan indebtedness and to further understand what all is within your right to use the "exception clause" provided within the BR Code §523 - with the need to prove you and your dependents are indeed suffering "Undue Hardship", I suggest you look at this link here: http://www.finaid.org/questions/bankruptcylimitations.pdf Again the internet is your best way to find the information! Use it! 

I hope this helps.  My goal is writing these articles is to provide some small helps to those who have looked for answers on how to deal with the relentless attack by ruthless and predatory lenders backed by the Department of Education who are continuing to make it their goal not to allow information about the legal use of Bankruptcy to discharge student debts even when the debtor is suffering "UNDUE HARDSHIP" with poverty disabilities, and life threatening illness!

You can do it!  I am proof!  If I did it -- anyone can!


If you like my articles, please let me know.  If I can answer any questions, I will.  Please follow me by adding your email address to the box in the upper right of this page or in the link box at the very bottom of this page below.  

Thank you, and God Bless You, and God Bless America! Richard Allan Precht, MSA







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