STUDENT LOAN DISCHARGES IN THE 7TH CIRCUIT: SOME THOUGHTS
Authored by: Steven P.Taylor
Student loans have become one of the largest components of debt in American society. This size is a major problem that the bankruptcy system must address to effectuate its policy goals of fresh start (Chapter 7 bankruptcy) and rehabilitation (Chapter 13 bankruptcy).
Delinquencies on student debt are far higher than those for other forms of consumer credit, including credit cards, mortgages and auto loans. For example, 8.5% of all auto loans were at least 30 days delinquent in the year through last September. Recent research shows that nearly 1 in 3 people whose student loans are in repayment status are at least one payment behind on their payments according to the Federal Reserve Bank of St. Louis. This is a frightening from two aspects. First, the above statistic does not account for the (typically unemployed) college borrowers who are not even required to make payments until six months after they leave. Nor does it include former students that are out of school, past that grace period, and have received permission by their lender to suspend payments for a range of reasons, like unemployment. The researchers at the St. Louis Federal Research determined that, as of Jan. 1, more than half of student-loan debt–55%– was held by borrowers who were in repayment. The remaining 45% weren’t in repayment. The enormity of the issue is reflected by the enormous amount of student loan debt relative to the overall debt structure of our economy. Student loan debt is $1.2 trillion and is second only to mortgage debt which stands at $8.17 trillion. Credit card debt stands at $0.9 trillion.
With respect to mortgage debt and credit card debt, the bankruptcy courts have can discharge credit card debt and in personam liability on mortgage debt. But in order to wipe out student loans in bankruptcy, you must prove to the court that paying them would cause you undue hardship pursuant to 11 U.S.C. §523(a)(8). In interpreting that section, most bankruptcy courts follow the Brunner[i] test which outlines three (3) criteria to qualify for undue hardship
The Seventh Circuit articulated these three (3) criteria as follows:
(1) that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for [himself] and [his] dependents if forced to repay the loans;
(2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
(3) that the debtor has made good faith efforts to repay the loans.
The Seventh Circuit over the past three (3) years has had some decisions which have added texture to the implementation of the Brunner test which is instructional to the practitioner. My takeaway from these cases is below.
Recent Seventh Circuit cases
Krieger v. Educational Credit Management Corp., 713 F.3d 882 (7th Cir. 2013) This case is notable for two reasons. First, it stated that the 2nd and 3rd prongs of the Brunner tests are either a mixed question of law and fact or clearly factual. In either case, the standard of review of the bankruptcy court’s ruling should upheld unless clearly erroneous. Second, the Seventh Circuit’s reviewed the standards that the District Court applied to Brunner test and found that the proposition of law that a failure to use an available federal student loan repayment plan means the debtor fails the good faith element of the Brunner test is wrong.
Greene vs. U.S. Department of Education, 770 F.3d 667 (7th Cir 2014). Although not really on point as to the Brunner test, in dicta, the Seventh Circuit opined that the amount of student loan debt owed is a different issue from whether making him pay what he owed would impose an undue hardship. The size of the debt is relevant—the larger it is, the more likely that imposing full liability on the debtor will produce an undue hardship—but calculating the debt involves a different factual inquiry from whether the debt so calculated is crushing.
Tetzlaff v. Educational Credit Management Corporation, No. 14-3702 (7th Cir. 2015). This case is notable in that it reiterates Krieger ‘s deference to the bankruptcy court judge’s findings of fact as to the 2nd and 3rd prongs of the Brunner test. It also in reviewing the bankruptcy court’s findings of facts noted that payment on one student loan debt did not show good faith with respect a different student loan debt, at least if they were not joined in the same adversary proceeding. The Court noted that a debtor’s good faith efforts to repay his student loans are measured by his ability to obtain employment, maximize income, and minimize expenses.
What does this all mean? It means that it exceedingly important to present your case properly to the bankruptcy court judge at the outset. The factual findings are going to control and only clearly erroneous factual decisions will be reversed. In Tetzlaff, the Plaintiff had two expert witnesses excluded due to late disclosure. In addition, the dicta in the Greene case may indicate that the Seventh Circuit is open to a partial discharge to the extent that remaining liability would not impose an undue hardship.
If you have student loan debt problems or are considering filing bankruptcy to tackle your student loan debt, make sure you have a bankruptcy attorney review your options. For more information about this and other bankruptcy law issues, please contact me by email or call at 317-271-1111.
[i] Brunner v. New York State Higher Education Services Corp, 831 F.2d 395 (2nd Cir. 1987)
Filed under: Bankruptcy, Student Loan Tagged: bankruptcy, Discharge, Student Loans
I enjoy listening to a variety of podcasts while walking the dog or driving to the office. Podcasts are really amazing thing for those who crave learning, although there seems to be some rule that requires 50 bad shows to appear before you find a really great one. (Have you loaded the Stitcher radio app on your smartphone yet? You really should.) The EntreLeadership podcast is one of the better shows being streamed these days, and I had the pleasure of listing to Dale Partridge talk about his new book, People Over Profits.
As you might guess, the message of the book is that a business will not succeed in the long-run if it places profits over people, despite some evidence to the contrary. Perhaps it is better to say that businesses will be more successful in the long-run if they keep their customer’s best interest at heart. I think it really comes down to establishing trust. We trust that Apple computers are top notch and that Starbuck’s coffee is always great–they have earned that reputation.
What Partridge is talking about is more than just good business sense. We all need a set of core values to steer our personal lives and our businesses as well. In the long run, businesses and individuals get lost when they routinely put selfish short-term needs and wants ahead of others, especially customers.
I’d like to think we have modeled our law firm with the client needs and wants placed first. How do we do that?
- One-on-One Client Relationships. I strongly believe that each client should be assigned one attorney and one paralegal to handle their case from beginning to end. There is no confusion as to who is responsible or who to call. There is no red tape. You know your team and they know you.
- We do the Work. Many firms hand out thick questionnaires for clients to complete that list all debts, property, income and property transfers. Some of these questionnaires are 50 pages long! I have two objections to that: First, bankruptcy law is complex and it is unreasonable to assume that clients can really answer the questions correctly without prior experience. Second, isn’t filling out paperwork what you pay the attorney to do?
- Easy Access to Attorneys & Staff. It is easy to contact our attorneys when questions arise. Each attorney has a direct phone extension (mine is Extension 100) and appointments over the phone or in person are easy to schedule. We want you to understand your case and the legal process. That means we are here to answer questions in person, over the phone, through email or video chat or whatever else it takes.
- Copies of Documents. You are entitled to a copy of your case documents without charge whenever needed.
- Flat Fees. About 95% of all our cases are charged on a Flat Fee basis. Nobody likes surprises when it comes to fees. You know what your case will cost before it is filed.
- Resources. Our goal is to provide you with great resources to help guide you through the legal process. Our website is filled with helpful articles, legal forms and videos to help educate you on your legal rights. This is a ongoing project that we work on every day.
Creating a customer-focused organization is expensive and challenging. It takes a lot of time and money to be responsive. In the long-run it pays off. Deciding to be great instead of mediocre takes commitment, training, planning, money, passion and dedication. I don’t want to work any other way.
Image courtesy of Flickr and Janine & Jim Eden.
One of the most difficult hurdles Elkhorn bankruptcy clients face is paying bankruptcy attorney fees when they are already broke. However, the last thing an Elkhorn bankruptcy client should do is hire the cheapest bankruptcy attorney they can find. There are many low cost bankruptcy attorneys who advertise their cheap prices to unsuspecting clients, just like you. You must use extreme caution. The old saying, “You get what you pay for” holds true for bankruptcy attorney fees, too.
Hiring a Cheap Elkhorn Bankruptcy Attorney Can Be a Huge Mistake
When you research bankruptcy attorney fees, you may find a huge spread in the price ranges. This is due to the quality of work that will be dedicated to your case. This could be disastrous for you. Hiring an Elkhorn bankruptcy attorney who is not skilled, experienced, or knowledgeable in bankruptcy law, could potentially end with your bankruptcy case being thrown out. Once that happens, it is over. You get one shot. You don’t want to blow it.
While not all inexpensive bankruptcy attorneys are ignorant of bankruptcy laws and not all expensive bankruptcy attorneys are outstanding, you will need to proceed with caution. Research is the key to finding the best bankruptcy attorney for your needs. There are many more factors to consider, besides price, when looking for a competent Elkhorn bankruptcy attorney. You should also consider the following:
1. Does the attorney focus in bankruptcy? Many attorneys add bankruptcy to their list of practice areas since there is a fast turnaround on bankruptcy cases. These attorneys are only practicing bankruptcy for the quick money and they do not know the bankruptcy code inside and out. The quality of work performed on your bankruptcy case will be compromised.
2. What is the Elkhorn bankruptcy attorney’s success rate? Find out how many of the attorney’s bankruptcy cases were actually approved and debts discharged by the bankruptcy court.
3. How comfortable were you with the Elkhorn bankruptcy attorney during your initial consultation? You should not only “click” with your bankruptcy attorney, but you should also feel comfortable with his or her level of knowledge. Did the attorney answer all your questions with certainty? Do you feel you can trust this person?
4. Are there any hidden fees? Many bankruptcy attorneys will advertise a cheap price, but as your case progresses, there will be many fees added that you were not forewarned about. In the end, these hidden fees will cost you more than an honest, experienced bankruptcy attorney.
5. Who will be working on your bankruptcy case? Make sure you are working with an attorney and not a legal assistant. Many bankruptcy clients find they meet with a cheap bankruptcy attorney during the initial consultation and, once hired, never hear from them again.
6. How can the bankruptcy attorney afford to charge so little? Find out how many bankruptcy cases the law firm handles. They may be charging so little because they are handling a large volume of bankruptcy cases. These types of law firms are called bankruptcy mills. Don’t expect your bankruptcy file to get the attention it deserves.
7. What is the Elkhorn bankruptcy attorney’s response time to questions? How quickly will your phone calls and emails be answered about your bankruptcy case during the process? Many bankruptcy clients find they meet with a cheap bankruptcy attorney during the initial consultation and, once hired, response times are very slow or nonexistent.
Choose Your Elkhorn Bankruptcy Attorney Wisely
The Bankruptcy Code is extremely complex. There have been many changes to the law over the last several years. You need an experienced and knowledgeable Elkhorn bankruptcy attorney on your side. At Wynn at Law, our Elkhorn bankruptcy attorney has a 100% success rate, strictly practices bankruptcy, and is the only attorney handling your bankruptcy case. Your file will not be passed off to someone else. Your phone calls and emails will be answered promptly. There are no hidden fees involved with your attorney fees. There are no long lines in our waiting rooms. Wynn at Law also offers convenient payment plans to make our bankruptcy attorney fees affordable for you.
Contact Our Elkhorn Bankruptcy Attorney
Our Elkhorn bankruptcy attorney offers a free, initial consultation. Please, feel free to schedule your consultation any time via phone or through our website. You can reach our Elkhorn bankruptcy attorney by phone at 262-725-0175 or by email on our website’s contact page. Wynn at Law has bankruptcy offices conveniently located in Lake Geneva, Delavan, Salem, and Musekgo.
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*The content and material on this web page is for informational purposes only and does not constitute legal advice.
According to the Consumer Financial Protection Bureau (CFPB) “Discover created student debt stress for borrowers by inflating their bills and misleading them about important benefits,” said CFPB Director Richard Cordray. “Illegal servicing and debt collection practices add insult to injury for borrowers struggling to pay back their loans. Today’s action is an important step in the Bureau’s work to clean up the student loan servicing market.”
Discover Bank is an Illinois-based depository institution. Its student loan affiliates – The Student Loan Corporation and Discover Products, Inc. – are also charged in today’s action. Beginning in 2010, Discover expanded its private student loan portfolio by acquiring more than 800,000 accounts from Citibank. As a loan servicer, Discover is responsible for providing basic services to borrowers, including accurate periodic account statements, supplying year-end tax information, and contacting borrowers regarding overdue amounts.
- • Overstated the minimum amount due in billing statements.
- Misrepresented on its website the amount of student loan interest paid.
- Illegally called consumers early in the morning and late at night, often excessively.
- Engaged in illegal debt collection tactics by failure to comply with the consumer notices required by federal law.
I hate it when companies do illegal stuff to my customers. I’m a personal bankruptcy lawyer. I love being a bankruptcy lawyer, because I can help almost everyone I see. I love being able to help people get back on their feet. And I hate it, when companies do illegal stuff to my customers. (And people in financial trouble are […]The post Why FCRA and FDCPA Cases in the General District Court by Robert Weed appeared first on Robert Weed.
Chicago bankruptcy attorney David M. Siegel answers a few important questions pertaining to Chapter 7 bankruptcy. The questions were made a part of the Legal Action television show which airs in the Chicago market. Whats a Chapter 7 Bankruptcy? Interviewer: What’s a Chapter 7? David Siegel: Chapter 7 is the most common form of bankruptcy. About 75+ Read More
The post Chapter 7 Bankruptcy Answers appeared first on David M. Siegel.
In a recent bankruptcy decision, Bank of America v. Caulkett, the Supreme Court denied a chapter 7 debtor's attempt to strip away or discharge an unsecured second mortgage in a chapter 7 bankruptcy filing.
The debtor, Mr. Caulkett, owned a house in Florida. The house was subject to a first mortgage in the amount of $183,264, the house had a fair market value of $98,000 and was subject to a second mortgage in the amount of $47,855, that was held by the Bank of America.
Mr. Caulkett's position was that since the Bank of America second mortgage was "underwater", or totally unsecured, the second mortgage should be stripped away or discharged in the chapter 7 bankruptcy filing like a credit card debt.
The Supreme Court, relying on an earlier decision known as Dewsnup denied the Debtor's claim stating that the outcome in Caulkett was controlled by Dewsnup . Although in a footnote by Justice Thomas, Justice Thomas noted that from its inception Dewsnup has been the target of criticism. Additionally during oral argument one of the Justices asked the Debtor if they were seeking to overturn Dewsnup and counsel for the debtor said no. In the future a debtor may seek to have Dewsnup overturned based on this footnote.
Notwithstanding the Caulkett decision which involved a chapter 7 bankruptcy case, a debtor may still be able to strip off or discharge an unsecured second mortgage or home equity loan in a chapter 13 bankruptcy case. Homeowners whose houses are underwater and subject to a second mortgage, may want to seek a consultation to determine their options with Jim Shenwick.
Sixth Circuit Affirms Bankruptcy Court Order Allowing Amended Exemptions Following Re-Opening of Case
In a Chapter 7 bankruptcy case, a debtor is required to file a schedule listing all of the debtor’s property. This includes cash, hard assets such as furniture and cars, as well as intangibles such as causes of action or potential causes of action. The Bankruptcy Code allows debtors to “exempt” certain types of property from the estate, enabling them to retain exempted assets post-bankruptcy.
In a recent opinion, the U.S. Court of Appeals for the Sixth Circuit analyzed the limits of a bankruptcy court’s authority to disallow claimed exemptions. Read More ›
Tags: 6th Circuit Court of Appeals, Chapter 13, Chapter 7
MacKenzie v. Neidorf (IN RE NEIDORF; 9TH CIR. BAP)
Chapter 7 debtor Carrie Margaret Neidorf (Debtor)scheduled her real property (Residence) as an asset of her estate. There was no equity in the property. Postpetition, the lender obtained an unopposed relief from stay order and foreclosed on the property. Years after the foreclosure, but while her bankruptcy case was still open, Debtor received a postpetition payment in the amount of $31,250 (Foreclosure Payment). The payment was made to Debtor pursuant to a national settlement between banking regulators and certain financial institutions, including Bank of America (B of A). Debtor disclosed her receipt of the Foreclosure Payment to Robert A. MacKenzie, the chapter 7 trustee (Trustee). Trustee then filed a Motion to Compel Debtor to Turnover Estate Property (Turnover Motion), asserting that the Foreclosure Payment was property of the estate under § 541(a)(7). The bankruptcy court denied his motion, and this appeal followed. For the reasons discussed below, we AFFIRM.
The result is that, in the Ninth Circuit, the debtor is able to keep funds that become available after the bankruptcy is filed. This is a great result for individuals. My congratulations to Ms. Neidorf’s attorney Kenneth Neeley.