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On February 25, 2015, the Nebraska bankruptcy court issued a new student loan opinion that should lift the hopes of debtors overburdened by student loans. See In re DeLaet, Case #13-04032.
What is striking about this opinion is that the court granted a discharge of student loans to a relatively young debtor in good health. The facts of the case are as follows:
- The debtor is 28 years old and is in good physical health.
- The debtor had no dependents and was engaged to be married.
- She graduated from college in 2009 with a degree in Fine Arts and English.
- She owed $169,711 of student loans.
- $27,045 of her loans were Federal Student Loans and those loans were enrolled in an Income Based Repayment (“IBR”) plan with the Department of Education. None of the federal student loans were discharged.
- $142,66 of the loans were Private Student Loans (i.e., not guaranteed by the government).
- The debtor was unable to find work in her field of study and testified that she submitted hundreds of job applications.
- The debtor eventually found employment as a child welfare case worker earning $17.68 per hour.
- There were no gaps in the debtor’s employment history. She consistently held jobs even if it was outside her area of education and took part-time jobs earning minimum wage.
- The debtor did make payments on the private loans and sought out payment options with the private loan providers but eventually was unable to afford the payment.
- The private student loan providers told the debtor that she was “out of options” and simply had to earn more money.
- The debtor’s mother had co-signed her private loans.
- The debtor’s fiance was reluctant to marry until the student loan problem was resolved.
- The debtor sought discharge of her private loans under Bankruptcy Code section 523(a)(8).
A debtor seeking discharge of a student loan must prove that payment of the loan would impose an “undue hardship” on the debtor or the debtor’s family. The 8th Circuit Court of Appeals applies a “Totality of the Circumstances” test to determine if an undue hardship exists. Courts must examine the following factors when reviewing student loan cases:
- The debtor’s past, present, and reasonably reliable future financial resources.
- The debtor’s reasonable and necessary living expenses.
- Other relevant facts and circumstances
- The debtor has the burden of proving undue hardship by a preponderance of the evidence. The burden is rigorous.
- If the debtor’s reasonable future financial resources will sufficiently cover payment of the student loan debt – while still allowing for a minimal standard of living – then the debt should not be discharged.
Educ. Credit Mgmt. Corp. v. Jesperson (In re Jesperson), 571 F.3d 775, 779 (8th Cir. 2009) (citing Long v. Educ. Credit Mgmt. Corp. (In re Long), 322 F.3d 549, 554-55 (8th Cir. 2003).
A thorough review of the debtor’s monthly income and expenses revealed that she had $214 left after paying basic living expenses. She negotiated an Income Based Repayment plan with the Department of Education to pay $215 per month towards the $27,045 federal loan, leaving nothing left over to pay her private loans.
What is so striking and encouraging about this court ruling is how absolutely practical and realistic it is. Debtors are often denied their discharge application based on unrealistic expectations of what it costs to live in a modern era. For example, even though the creditor complained that the debtor spent $32 on internet, $93 on cell phones, $12 on recycling and $50 on miscellaneous expenses, the court balked at the suggestion that these expenses were unnecessary:
It is silly to suggest that Internet and cell phone expenses are not reasonable and necessary in this digital age. I find no fault with this category of expenses.
Student loan opinions are frequently characterized as being unrealistic and arbitrary. Courts often seem out of touch with the economic realities facing younger families, but this decision stands out for its realism:
Ultimately, this case boils down to the Defendants’ belief that, with time and a willingness to relocate, Ms. DeLaet might be able to find a better-paying job. Well, that might be true: given time and a willingness to relocate, she “might” be able to find a better-paying job – that is probably true of any employed person – but that is certainly not a reasonably reliable future financial resource. Also, what about the payments that are coming due in the meantime? The numbers are what they are – at this time, she does not have the net income to pay the loans owed to the Defendants. So, the debt just keeps getting larger and larger with default interest and capitalization and the Defendants can sue her to try to collect their debts.
Wow, we can judge cases by what is presently realistic, not by what “might” be true in the uncertain future. The numbers are what they are. Let’s talk about what is actually happening, not about what might happen if the debtor was somebody else.
This is an encouraging opinion. There is new hope for the honest but unfortunate debtor.
One of the major differences between various debt relief options is the approach taken to resolve the debt. The approach you take for debt resolution can impact everything from: The time it takes to resolve your debt situation; The impact to your Credit; The actions Creditors take to collect on the debt; The stress you […]
The post Debt Relief Blog Series: Determining Your Best Option. Part IV: Approach to Resolving the Debt appeared first on Acclaim Legal Services, PLLC.
Parking Tickets On The Rise Maybe the city of Chicago is getting more aggressive in issuing parking tickets. Maybe the need for revenue is increasing the activity of agents on the streets. Maybe there are simply not enough parking spots and it is leading people to park where they shouldn’t. Whatever the reason, the increase+ Read More
The post City Of Chicago Parking Tickets And Chapter 13 Bankruptcy appeared first on David M. Siegel.
Here at Shenwick & Associates, many of our clients are looking to protect their assets (as we've covered extensively in our recent e-mails). This month, we're going to look at the intersection of business law and debtor and creditor law in discussing the use of limited liability companies (LLCs) as a tool for asset protection.
Unfortunately, New York law provides LLCs with less protection from a member's personal creditors than many other states. In most states, an LLC's money or property can't be taken by creditors to pay off the personal debts or liabilities of a member of the LLC. Instead, creditors are limited to obtaining a charging order against the LLC.
A charging order is the vehicle that gives a creditor a lien against the debtor/member's LLC economic interest in the LLC, which lasts until the judgment is satisfied. This lien is only against whatever distributions that the LLC makes to the debtor/member, if any and doesn't give the creditor any of the other rights that an LLC member has, i.e. voting rights.
New York case law provides that a charging order may not be a creditor's sole remedy against a LLC. In 3 West 16th Street, LLC v. Ancona, the plaintiff/creditor claimed that that codefendant Ancona acted with fraudulent intent when he transferred real property to the codefendant LLCs.
For the Supreme Court of the State of New York, New York County, Justice Singh wrote:
New York's LLC law does not provide that a charging order is a creditor's exclusive remedy against a member. That means that a creditor may be able to foreclose on the member's interest in the limited liability company and become owner of its financial rights in the company, and thus, obtain more authority than a mere assignee. However, that appears to be a rare event. (emphasis added)
The facts and circumstances of each case is important from a debtor/creditor perspective. For more information about LLCs, debtor/creditor law and bankruptcy law, please contact Jim Shenwick.
Save Your Home & Pay Your Mortgage.. Through Chapter 13 Bankruptcy It is understandable that you will have tremendous fear when you fall behind on your mortgage and you start to receive threatening letters. You may not even know that bankruptcy is an option to save your home and stop a foreclosure case. You probably+ Read More
The post Bankruptcy Is Just One Option To Save Your Home appeared first on David M. Siegel.
President Obama signed an executive action on Tuesday that would make it easier for Oregon bankruptcy filers to discharge certain kinds of student loans. As any would be Oregon bankruptcy filer knows, student loan debt is extremely difficult to eliminate now. The most common path to discharge now requires a showing of undue hardship which is now so stringently defined that an Oregon bankruptcy attorney could go through her entire career without finding a case that would meet the required criteria.
It appears that the undue burden standard may now be broadened such that more debtors would potentially be able to eliminate their student loans. It is, however, far from certain how many Oregon debtors will be affected and what the new standard for discharge will be.
We know that the executive branch has directed the Secretary of Education, by July 15, 2015, to “issue information highlighting factors the courts have used in their determination of undue hardship, to assist parties who must determine whether to contest an undue hardship discharge in bankruptcy of a federal student loan.” The president has also suggested relief might be forthcoming as well concerning private student loans.
Obama has asked the the Consumer Financial Protection Bureau, the Department of Education and the Treasury Department to make recommendations by Oct. 1, concerning any needed changes to bankruptcy laws and other laws and regulations. Some 40 million Americans have student loans totaling approximately $1.3 trillion, the White House says. The average debt is about $28,000.
The original post is titled Student Loan Bankruptcy Relief Coming to Oregon?! , and it came from Portland Bankruptcy Attorney | Northwest Debt Relief .
When people hear I am a bankruptcy attorney the first thing they say is “I hope I never need your services, no offense.” I understand the sentiment. Nobody wants to file bankruptcy. There is something else, however, just under the surface of this statement. While GM, Chrysler, and American Airlines can all file bankruptcy and have it considered a “smart business move”, when individuals file for bankruptcy there is still a stigma in the eyes of some. It shouldn’t be that way. Without bankruptcy, America would be a very different place. Many of the great American success stories have happened only after the filing of a bankruptcy. Entrepreneurs take great risks to build their company, and like the rest of us, they do not always succeed. Without the ability to get a fresh start, the following American businesses would not exist today:
Ford Motor Company: Henry Ford was perhaps America’s greatest entrepreneur. When he created the assembly line he revolutionized the world. With that innovation Henry Ford lowered the cost of goods across American and allowed the American Economy to take off in a way that no country had ever seen before. However, before the raging success of Ford Motor Company, Henry Ford filed bankruptcy not once, but twice.
Disney: Mickey Mouse, Donald Duck, Cinderella, Mulan, and Elsa have helped shape American youth for almost a century. In fact, for many Europeans, Disneyland and Disney World have both become synonymous with America itself. However, prior to starting Disney Brother’s Studios, Walt Disney had started a company in Kansas City that became burdened with debt. Without a fresh start, Walt Disney would not have had the ability to take another gamble and start the company that we love so much. While there are days when I am listening to “Let It Go” for the upteenth time that I think that may not be such a bad thing, America would certainly be a different place had Mickey never warmed our hearts.
Heinz: What is more American than a hot dog smothered in ketchup at a baseball game? Anything? As popular as ketchup is today, Heinz is certainly the best known brand. However, as successful as H. J. Heinz’s second company would be, his first attempt was a dismal failure. Having attempted to succeed with a horseradish company, H.J.’s company fell apart when the financial world collapsed in 1875. After getting a fresh start through bankruptcy, H.J. went on to define what it meant to be a condiment.
This is only three of the many success stories that have followed a bankruptcy filing. When an individual gets a fresh start they are able to reinvest in our country. Whether that means starting a company, going back to school, or just raising their children with pride, the benefits that bankrupt Americans have bestowed on this country are immeasureable. So the next time you hear that someone is conemplating bankruptcy don’t judge them. Instead, be happy that in there own way they will have a chance to contribute to the future greatness of
On March 10, 2015 the White House announced that President Obama would sign a Presidential Memorandum directing the Department of Education and other federal agencies to work across the federal government to do more to help borrowers afford their monthly loan payments including: (1) a state-of-the-art complaint system to ensure quality service and accountability for the Department of Education, its contractors, and colleges, (2) a series of steps to help students responsibly repay their loans including help setting affordable monthly payments, and (3) new steps to analyze student debt trends and recommend legislative and regulatory changes. In addition, the Administration is releasing state by state data that shows the outstanding federal student loan balance and total number of federal student loan borrowers who stand to benefit from these actions. This move underscores his vision for an affordable, quality education for all Americans in a Student Aid Bill of Rights which he started five year ago.
A Student Aid Bill of Rights
- Every student deserves access to a quality, affordable education at a college that’s cutting costs and increasing learning.
- Every student should be able to access the resources needed to pay for college.
- Every borrower has the right to an affordable repayment plan.
- And every borrower has the right to quality customer service, reliable information, and fair treatment, even if they struggle to repay their loans.
Note from Diane: For students with existing loans – don’t hold your breath that this will actually bring some timely relief. When the administration changes so will the focus on these types of programs.
For those who are considering taking students loans – do not take out more student loans than you can afford to reasonably pay over a period of 10 years. Critically analyze your chosen employment market and determine how much you can reasonably expect to be paid. Reduce that amount by at least 35%. Now you might be looking at your financial reality for the five year period after graduation. But, if you are considering a career in a market that is saturated, then expect to find work far outside your chosen career and income far below the expected rate. It that case it will most likely take you 20 or more years to pay back the student loans, if ever within your income producing life. Be very careful about your decision to borrow student loans.
The post A Student Aid Bill of Rights – March 10, 2015 appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.
Many people ask whether or not a student loan company or SBA creditor can garnish their wages without first obtaining a court order. The answer is “yes”. 
The following is a direct quote from an article by the Bureau of Fiscal Services an “administrative Wage Garnishment (AWG) is a debt collection process that allows a federal agency to order a non-federal employer to withhold up to 15 percent of an employee’s disposable income to pay a nontax delinquent debt owed to the agency.
Treasury, on behalf of the federal agency, is authorized to issue a wage garnishment order to collect the debt. Under federal law, a court order does not need to be obtained. The employer will be required to send the amounts deducted to Treasury for payment to the federal agency. The AWG process is governed by federal law. State laws do not apply (emphasis added).
A debtor is entitled to a hearing before AWG begins if it is requested within 15 business days after the AWG notice letter is mailed. The federal agency may continue the AWG process if a hearing is requested after the 15-day period. A hearing may be requested concerning the existence or amount of the debt, or the terms of the proposed repayment schedule under the garnishment order (hardship).
The federal agency will determine whether the hearing will be oral or written. If the agency decides to hold an oral hearing, the agency will decide when and where the hearing will be held, and the debtor may decide whether the hearing will be in-person or by telephone. The debtor will have to pay any travel expenses for an in-person hearing.
This process is authorized by section 31001(o) of the Debt Collection Improvement Act of 1996 (DCIA), codified at U.S.C. 3720D. The rules and procedures governing AWG were published as a Final Rule (31 CFR 285.11) in the Federal Register on May 6, 1996 (63 FR 25136). In accordance with the Final Rule, Debt Management Services (DMS), Bureau of the Fiscal Service (Fiscal Service), formerly the Financial Management Service, U.S. Department of the Treasury, promulgated Standard Form 329 (SF-329)
, which federal agencies are required to use to issue AWG orders.”
Forms are available for the borrower to request a hearing regarding the terms of the repayment schedule (hardship), “a financial statement with supporting documentation must be submitted with the hearing request form received with the notice letter.”
I provide this information because many people believe their wages are protected until a creditor obtains a judicial order permitting garnishment of wages. Unfortunately, they are very surprised when their paycheck is garnished without notice. That garnishment starts an avalanche of bounced checks, NSF fees and aggressive creditors calls and lawsuits.
The post Garnishment of Wages – Administrative Actions appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.
As the internet continues to expand, individuals are seeing ever expanding options that “allow” them to “replace expensive services with low cost alternatives.” If you believe the hype, websites and algorithms can replace everything from travel agents to doctors. Why take your kid to the doctor when you can simply use Web M.D. However, despite the magnificent claims of some of these websites, the reality is that web-based models often fall well short of the real life services of the past. Good doctors don’t simply use the symptoms that you tell them about, but rather ask you probing questions to get to symptoms you may not even realize that you are exhibiting. Travel agents don’t simply buy your tickets for you, but often suggest travel plans you didn’t even know you wanted. When a problem occurs on a trip, a website can’t fix it, but a good travel agent can.
When you sit down with a good attorney, their job is not to find out what you want and do it. The job of an attorney is to find out what your goals are and help you achieve them. The difference can be immense. Imagine a client who has a burden of debt that is just too high. He can no longer afford to keep his home, he has thousands of dollars in credit card bills and he owes his ex-spouse a property settlement. His friend tells him that he should file for Chapter 7 bankruptcy. The client goes to an online service, clicks on Chapter 7 and fills out the forms. He prints them out and heads down to the bankruptcy court to file the documents. The client is able to give up his home in the bankruptcy and get rid of the credit card debt but he still has to pay his ex-wife the property settlement. The client got what they wanted, a Chapter 7.
Now imagine that same client goes to a qualified bankruptcy attorney. The attorney sits down with him and finds out that his home has dropped in value and is worth less than what is owed on the first mortgage. After talking with the client, the attorney learns that the client would prefer to stay in the house, but simply cannot afford it. He could afford to stay if he didn’t have to pay the second mortgage and all the credit card debt. He also would prefer not to have to honor the property settlement agreement which he viewed as unfair in the first place. The attorney suggests that the client files for a Chapter 13 Bankruptcy. They file an adversary to strip the second mortgage, they discharge the property settlement in the Chapter 13 Plan (something that is not available in a Chapter 7) and they save the clients home. Ultimately the client did not get what they wanted. However, the client was better able to achieve their goals through the counsel of the attorney.
The reality of life is that attorneys do not sell you paperwork. The product that we produce is not the forms that are filed with the court. Attorneys offer advice and wisdom gained through years of study and practice that we have experienced. The paperwork is simply the tangible manifestation of that product. Do I believe that legal websites can replace a good attorney? No, and neither should you.
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