Discharge of Student Loan New Guidelines

 

The Department of Justice, in close coordination with the Department of Education, announced a new process for handling cases in which individuals seek to discharge their federal student loans in bankruptcy. The new process will help ensure consistent treatment of the discharge of federal student loans, reduce the burden on borrowers of pursuing such proceedings and make it easier to identify cases where discharge is appropriate. The Associate Attorney General outlined the new process to all U.S. Attorneys.

See https://www.justice.gov/

If you have student loans, I suggest you speak with a competent bankruptcy attorney in your area regarding having it discharged in bankruptcy, or entering into an income based repayment program whereby the balance after 20 years will be forgiven.

The above information is based on a press release from the US Department of Justice dated November 17, 2022.

Thinking of Filing Bankruptcy: Questions You Should Ask

 Are you thinking of filing bankruptcy.  Many people think they need to file bankruptcy based on things their non attorney friends tell them, or things they have heard in the media.  Bankruptcy is a very important decision, and should not be made without competent counseling and research.

To assist you in educating yourself as to whether bankruptcy is a remedy you should pursue, here are a list of questions and topics for your consideration. 

Initial questions

• What is bankruptcy?
• Why might someone file for bankruptcy?
• Why might someone NOT file for bankruptcy? 
• What are the alternative to filing for bankruptcy?
  

What are the types of bankruptcy for individuals?

• Chapter 7 bankruptcy
• Chapter 13 bankruptcy
• Chapter 11 bankruptcy
• Chapter 12 bankruptcy
  

The bankruptcy process

• What happens when you file for bankruptcy?
• What are the benefits of bankruptcy?
• What are the drawbacks of bankruptcy?
• What are the financial considerations?
• What are the personal considerations?
• What are the latest developments related to bankruptcy?
  

Filing for bankruptcy

• How to choose the right type of bankruptcy
• How to prepare for bankruptcy
• How to file for bankruptcy

Professionals

• Should you hire an attorney?
• What does the attorney include?
• What does the attorney exclude?
• Other questions for the attorney?
  

After Bankruptcy 

• How to rebuild your credit after bankruptcy

Conclusion

• What happens after you file for bankruptcy?
• Should you file for bankruptcy?
  

This is is not intended to be an exhaustive or comprehensive list.  This is simply intended to give you initial guidance towards a logical decision making process related to bankruptcy.

Should you have any questions about bankruptcy, you should contact a competent bankruptcy attorney in your area.

J. Dinkins G. Grange, Esquire

Fraudulent Debt and The Innocent Spouse; Bartenwerfer v. Buckley

Can the fraud of one spouse be imputed to an innocent spouse, thereby making the debt nondischargeable to both in a bankruptcy?  

The law has been well established that the fraudulent acts of one spouse cannot be imputed to a spouse that did not know, or should not have had a reason to know, of the fraudulent conduct.  However, when it comes to discharging debts in bankruptcy, it may not be quite as clear.

Recently the case of Bartenwerfer v. Buckley presented an unexpected finding.  The case involved a husband and wife that sold real property with defects that were not disclosed.  The husband was found to have committed fraud, which is a specific intent cause of action, in the sale of real property.  While the wife did not know, and had no reason to know, of the defects, with both the husband and wife signed disclosure agreements concerning property defects.  

Both husband and wife filed bankruptcy.  As expected, the creditor filed an appropriate pleading to find the fraudulent debt nondischargeable as to the husband, which was granted.  However, as to the wife, while the trial Court found the debt to be dischargeable, the Supreme Court found otherwise, and as  nondischargeable under the strict language of 11 USC 523(a)(2)(A) using the key parced language, "does not discharge an individual debtor from any debt … obtained by … false pretenses, a false representation, or actual fraud."

Chapter 13 Treatment of Sale Proceeds; Sections 541, 1306

What happens to post confirmation proceeds from the sale of assets vested in the debtor while in a Chapter 13 bankruptcy? Is the debtor able to keep the proceeds, or do they become property of the bankruptcy estate?

In analyzing this question, we begin by looking at the relevant section of the bankruptcy code, which are § need to look at competing sections of the bankruptcy code; most notably 11 USC §§ 541, 1306. Section 541 states “all legal or equitable interests of the debtor in property as of the commencement of the case” and “[p]roceeds, product, offspring, rents, or profits of or from property of the estate.” This is clarified within Chapter 13 cases, as § 1306 states “in addition to the property specified in § 541”, the bankruptcy estate includes all property “of the kind” specified within § 541 “that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted...whichever occurs first.” 11 USC § 1306(a).

To summarize, the above code sections state property of the estate is all property the debtor (1) owns on the date the petition is filed and (2) acquires while the chapter 13 case is pending.

So, if property revested with the debtor upon confirmation is sold, what happens to the proceeds from the sale?

Fortunately, we have some guidance from In re Baker, 620 B.R. 655, 663-64 (Bankr D. Colo. 2020) wherein the court list 5 approaches. The approaches are as follows:

(1) Estate Termination Approach. The court concluded § 1327 vest all property in the debtor at confirmation, therefore the chapter 13 estate terminates at confirmation except as provided for in the debtor’s chapter 13 plan. In re Jones, 420 B.R. 506, 512-13, 515 (B.A.P. 9^th Cir. 2009).

(2) Estate Preservation Approach. In this approach, the estate continues after confirmation, retains all pre-confirmation property, and includes any property acquired by the debtor after confirmation. In re Clouse, 446 B.R. 690, 700 (Bankr. E.D. Pa. 2010).

(3) Conditional Vesting Approach. This is a hybrid approach. Property is simultaneously property of the debtor and property of the estate. Section 1327 gives the debtor “an immediate and fixed right to the future enjoyment of the bankruptcy estate” after the debtor “has faithfully completed his obligations under the plan and is entitled to a discharge.” Woodard v. Taco Bueno Rests., Inc., No. 4:05-CV-804-Y, 206 WL 3542693.

(4) Estate Transformation Approach. The “estate consists of the property and future earnings of the debtor dedicated to fulfillment of the Chapter 13 plan.” This approach does not take into consideration when the property was acquired. In re Root, 61 B.R. 984, 985 (Bankr. D. Colo. 1986).

(5) Estate Replenishment Approach. Pre-confirmation property becomes property of the debtor at confirmation, while post-confirmation property becomes property of the estate. In re Fisher, 203 B.R. 958, 962-63 (N.D. Ill. 1997).

Hopefully this gives you an overview of approaches the courts consider when deciding on how to treat sale proceeds of active Chapter 13 bankruptcies.  These approaches tend to be the bases for courts coming up with their own and sometimes unique approach.  So, if you are thinking of selling an asset in your Chapter 13, make sure to check with a competent bankruptcy attorney in your area to understand the effects of the sale.