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Just weeks after Discover was ordered by the Consumer Financial Protection Bureau to pay $18.5 million for illegal student loan servicing practices, Citibank is facing a probe into its own practices.
In a filing dated August 3, 2015 with the Securities and Exchange Commission, the banking giant indicated that federal regulators have opened a probe into its student loan servicing practices.
Though Citi didn’t indicate which federal agency is conducting the investigation or which student loan practices are the subject of concern, a source tells Bloomberg that that it is part of a crackdown by the Consumer Financial Protection Bureau.
The investigation comes nearly five years after the company sold nearly $28 billion in securitized federal loans to Sallie Mae, and nearly $4.2 billion of private loans and $3.4 billion of securitized loans to Discover Bank. Since that time, Citi has largely remained out of the student loan business.
The Citi student loans, by the way, were the same ones that landed Discover in hot water with the CFPB in July 2015.
Loan servicers like Citibank are responsible for communicating with borrowers, sending invoices, collecting payments, keeping accurate records and handling deferments and forbearances.
Image credit: bruceg1001
 

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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.
CONCLUSION
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.

When a person files for bankruptcy in Florida and owes a gambling debt in Nevada, which state's law apply in determining the various issues about the claim for gambling debt? In the bankruptcy case there may be issues as to the allowability of the claim or whether the claim should be dischargeable or nondischargeable?  A 2006 Florida bankruptcy ruling dealt with this issue.

The Bankruptcy Court reviewed that normally a federal court hearing a matter pursuant to diversity jurisdiction must apply the law of the state in which it sits, but that such rule does not apply to a bankruptcy court as it is not sitting as a federal court with jurisdiction based on diversity. The bankruptcy court reviewed that the choice of which state's law applies should in part be based on which state's law more logically relates to the claim and the "significant relationship" test.

Jordan E. Bublick - Miami Bankruptcy Lawyer - North Miami & Kendall Offices - (305) 891-4055 - www.bublicklaw.com