There has been long a perpetuating myth that student loan debt in America cannot be wiped out by declaring bankruptcy. The truth is quite the opposite. A court can grant you a discharge provided you can prove it is causing you ‘undue hardship’.
Courts will use different tests to evaluate whether it might be causing you undue hardship. The commonly used is the Brunner test. Passing it requires you to prove that:
1. You and your dependents are unable to maintain the ‘minimal’ standard of living because of the debt
2. Additional circumstances exist that will make such a state of affairs to persist for a long period
3. You had made real effort to repay your student loan debt.
On the surface, this does make it seem that qualifying for a discharge might be difficult, but an empirical student from Villanova University found that judges have granted a hardship discharge to 40% of debtors who sought one.
In such a context, it may be surprising to find that 99.9% of debtors who have filed for bankruptcy don’t even attempt to discharge their student loans. With more and more individuals suffering from mounting student loan debt, it remains highly critical to raise awareness about how it could potentially be wiped out.
Chapter 7 and Chapter 13 are two common bankruptcy programs available to individuals to discharge their debts. If you ever got confused between the two, here is a quick what, when, and why to help you learn their differences.
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is a liquidation bankruptcy. Your non-exempt assets are sold by the court trustee to repay your creditors.
When is Chapter 7 Bankruptcy Needed?
When your debt becomes completely unmanageable, and you want a quick discharge to restart your financial life.
Why is Chapter 7 Bankruptcy Important?
It helps eliminate the risk of debt trap that, otherwise, individuals could fall into if they can’t keep up with the repayments.
What is Chapter 13 Bankruptcy?
Chapter 7 bankruptcy is a reorganization bankruptcy. Rather than a discharge, your repayment schedule is reorganized based on what you can actually pay.
When is Chapter 13 Bankruptcy Needed?
When you are struggling to repay your debt but don’t want to risk losing any of your assets.
Why is Chapter 13 Bankruptcy Important?
It allows you to prevent foreclosure or selling off of your assets by creditors by making repayment more manageable.
For those struggling with debt, bankruptcy provides a means to get rid of the financial burden and start your life from a clean slate. Still, bankruptcy remains a little-understood concept by many people, preventing them from fully taking advantage of their legal rights or even attempting to start their case when overburdened with debt. To enhance your knowledge on the subject, here is my recommendation of the five best books to read on bankruptcy.
1. Bankruptcy and Related Law in a Nutshell
by David G. Epstein
Epstein’s work is comprehensive, brilliant, and easy to digest. For those seeking a quick yet sound understanding of bankruptcy, this is book they should purchase. To reflects the changes in the legal landscape, the text receives frequent revisions and updates. Now in its 8th edition, this classic text has been a part of essential readings in many universities for law students for over 40 years.
2. The Attorney’s Handbook on Consumer Bankruptcy and Chapter 13
by John Williamson
Williamson’s book is a highly detailed and informative guide that empowers you with an in-depth on the subject. This is a book aimed towards legal practitioners as a refresher course but the language is simple enough to be accessible to the casual reader. For anyone looking for THE reference book to buy on bankruptcy, this is your purchase.
3. Personal Bankruptcy Laws for Dummies
by James P. Caher and John M. Caher
If you are looking for a concise read that provides straightforward and reliable answers regarding questions on bankruptcy, this handy guide has you covered. The book gives advice on every step of the process, from the filing all the way to your discharge. While certainly not a substitute for a good attorney, reading the book will help put you in ease
4. Solve Your Money Troubles
by Amy Loftsgordon and Cara O’Neill
Becoming overburdened with debt can be a highly stressful and even frightening experience, with constant harassment from creditor and threat of foreclosure. Endorsed by the Los Angeles Times as a must-read, this book packs plenty of great advice on how to get out of your financial troubles and rebuilding your credit.
At the Law Offices of Sean T. Flynn, PLLC, in Austin, TX, we provide personalized legal service and consultation to clients filing for bankruptcy under Chapter code 7 and 13. With over 8 years of experience in the field, we have helped numerous debtors achieve bankruptcy outcomes more to their favor. To schedule your free appointment, call 512.640.3340.
Bankruptcy fraud is a federal felony that can carry with it a number of severe penalties if the defendant is found guilty, ranging from heavy fines to years in prison. It can encompass a number of different offenses but the most common is of a bankruptcy filer deliberately hiding or lying about the value of their assets to the court.
However, cases can happen where, because of some error or misconception, one may find themselves wrongly accused of bankruptcy fraud. In case you are wondering what to do if you are charged with bankruptcy fraud, here are some legal options available.
Claim It’s a Mistake
If you failed to disclose information on any of your assets in your bankruptcy petition, you could claim that you did so mistakenly. Remember the burden of proof lies with the prosecutors. They will need to show enough evidence to prove beyond a reasonable doubt that it wasn’t a mistake but a deliberate action on your part.
Present a Legitimate Purpose
You can claim as a defense that your action, while deliberate, was done with the intention of a lawful purpose. For instance, you can say that car you sold to your friend at half its value wasn’t to commit bankruptcy fraud but to take advantage of a tax deduction. Again, prosecutors must provide proof of the action being taken with malicious intent for you to be declared guilty.
Withdrawal of Your Bankruptcy Case
If you are still under the Bankruptcy process and are charged with bankruptcy, you could choose to withdraw or renunciate your bankruptcy case. You could testify to the court that you regretted the decision to omit the asset intentionally or that a correction of the paperwork soon after you discovered the mistake. Either way, you can then file a new petition with the correct information presented.
Statute of Limitations
If you are charged with bankruptcy fraud for an offense that occurred years ago, you could argue in your defense that the statute of limitations has already elapsed. Thus, it could be claimed the government has no right to bring up these charges against you. For most bankruptcy fraud-related crimes, the statute of limitations is set at five years starting from the date of the offense or five years from the date or denial of discharge in case of deliberate asset concealment.
Hire a Bankruptcy Lawyer
Being wrongly charged with bankruptcy fraud can be traumatic and if declared guilty, completely ruinous. If you are facing such charges or suspect that you do, it is highly recommended to consult with a professional bankruptcy attorney on your options. For residents in the state of Texas, book a free consultation today with our law office by calling us on our number – 512.640.3340.
Texas is a state that offers among the most generous of bankruptcy exemptions. Here is a quick overview of which of your assets can be protected during a Chapter 7 bankruptcy case.
Texas allows you to exempt an unlimited amount of equity from your homestead (primary residence). Meaning that even if you have a million-dollar home, you don’t have to worry about its foreclosure to get your debt discharged. Compare this to the Federal exemptions, which is currently capped at only $25,150 – be it for home or vehicle.
However, there is a limit to the size of the homestead, currently capped at 10 acres in an urban area and 100 acres in a rural area.
You can exempt ONE vehicle of any equity from your bankruptcy case for every driver with a license in your household. That means if you have three cars and both you and your partner, as well as one of your children, hold a license, you can all of them exempted in your Chapter 7 bankruptcy case.
And even if a household member isn’t a licensed driver, an exemption may still apply provided that said member “relies on another person to operate the vehicle” for them.
Other Personal Property
Other properties and assets that can be exempted include:
Livestock up to varying amount depending on species (e.g. 12 cattle or 120 fowl)
tools used in a trade or profession
For more information or any other bankruptcy queries, call 512-640-3340.
Hospital and medical bills are mostly not under our control. Along with the emotional and physiological stress that comes when you or your loved one is in the hospital, dealing with the added pressure of overwhelming medical fees is not easy. This will why people often seek bankruptcy relief after an outstanding medical debt that might have spiraled out of control.
However, what happens then? Like we all know, life must go on. Can you file for bankruptcy and get out of paying your medical bills?
Medical Debt and Bankruptcy
To file for bankruptcy, debts need to be separated into two categories. These include the priority and nonpriority unsecured debt. When you file for bankruptcy, debts like domestic support obligations and overdue taxes do not get eliminated. In fact, they receive special priority treatment. This means that whenever you are in a position to pay the debt, these will have to paid off first.
Medical bills, however, fall under the category of unsecured debts. Like credit cards, they do not receive any special treatment. This quality results in them having the ability to be wiped out when you file for bankruptcy.
How Does This Happen?
Medical debt can be eliminated with Chapter 7, as well as Chapter 11 bankruptcy. To understand which bankruptcy you should file for, you will have to consider your personal situation and see if you meet the qualification requirements.
Chapter 7 Bankruptcy
If you pass the qualification requirements for Chapter 7 bankruptcy, your medical bills will be wiped out along with other unsecured debts, including student loans. Fortunately, there is no maximum limit to the medical debts that you can discharge under Chapter 7 bankruptcy. Whatever bills that have been paid with your credit card will not be taken into account, along with the rest of your credit card bill.
To qualify for Chapter 7 bankruptcy, you cannot have a high disposable income. Your income needs to be low enough to pass the Chapter 7 Bankruptcy Means Test. This calculates your current income to see if you can pay back a portion of your debt. This test is used to disqualify those with high incomes. If you do not pass the means test, you cannot qualify for the Chapter 7 discharge. However, you may file under the Chapter 13 bankruptcy relief.
Chapter 13 Bankruptcy
In Chapter 13 Bankruptcy, bills are included in your repayment plan, alongside other unsecured debt. Unsecured creditors will have to be paid based on your personal income, expenses, and nonexempt assets.
Each creditor is given a pro-rata portion to make them aware of the amount of money going towards these debts. However, there might be chances that you are not eligible for Chapter 13 bankruptcy. You will be required to make enough income to pay all your bills in full as part of your repayment plan. This also includes priority creditors who need to be paid back as soon as possible. Moreover, medical bills and additional debts must fall under the Chapter 13 debt limits.
When someone dies, the loss is heavy for family members, friends, and loved ones. Emotions are strong, and everything seems haphazard. However, what’s worse is when, amidst the chaos, there are legal issues to deal with that arrive if a debtor died after declaring Chapter 7 or Chapter 13 bankruptcy.
If you are an heir or successor of your loved one, the chances are that their estate will be passed on to you. However, this only happens if the debt is a joint debt between the deceased and the heir. Once a debtor passes away, creditors will line up to seek the deceased’s assets by selling the estate or getting their hands on anything that will help satisfy the remaining debt. This means that less amount of assets are left for loved ones.
Death and Chapter 7 Bankruptcy
When a debtor passes away during bankruptcy, we assume that the bankruptcy case is automatically closed, and debts are automatically discharged. However, this is not the case. Since the bankruptcy trustee has the responsibility of liquidating assets to pay back creditors, the bankruptcy involved in Chapter 7 bankruptcy does not impact the proceedings.
This means that the process would continue the same way as it would if the debtor was alive. The trustee has to sell off assets to ensure the creditors get paid. However, creditors may still be interested in the debtor’s estate if their debt has not been fully satisfied. This usually comes under bankruptcy discharge, meaning that this bankruptcy wipes out qualifying debt, such as credit card balances, medical bills, and personal loans.
Death and Chapter 13 Bankruptcy
When a debtor is involved in Chapter 13 bankruptcy, his death has more of an impact than if he was involved in Chapter 7 bankruptcy. For someone who partakes in Chapter 13 bankruptcy, his debt is eliminated through a pre-approved repayment plan. If the debtor dies, a trustee or personal representative will overlook the Chapter 13 bankruptcy. A Chapter 13 debtor has to make payments every month to the bankruptcy trustee for a period of three to five years until the repayment plan has been completed. In case he fails to do so, the court will automatically dismiss the case.
In this case, the trustee of the deceased would be presented with the following options:
Dismiss the Case
The most common option is case dismissal. This means that if a debtor passes away during Chapter 13 bankruptcy, the surviving trustees will allow the case to get dismissed so that creditors can take over the deceased’s estate and fulfill their credit.
Request a Hardship Discharge
Before all essential Chapter 13 plan payments have been completed, the court may grant a hardship discharge. In this case, the creditors will receive the same amount as in a Chapter 7 case. The value of the deceased’s property will not be protected with a bankruptcy exemption.
Conversion to Chapter 7 Bankruptcy
Surviving trustees can request the court to convert the case to a Chapter 7 bankruptcy so that they can receive a discharge. While some courts do not allow this, it purely depends on the court and the judge.
Move on with Chapter 13 Bankruptcy
Courts have the authority to proceed and conclude the Chapter 13 bankruptcy, pretending that the debtor has not passed away.
To know more about how Chapter 7 and Chapter 13 bankruptcy can impact individuals, schedule a free 1-hour consultation click here.
The connection between coronavirus and bankruptcy is not a shock for any of us. The economy has been shakier than ever and there is no way everyone will be able to recover post-pandemic. Hence, it is quite obvious for people to think about going bankrupt as an option as the result of recent changes that the world has been facing.
If you own a business or are a debtor of a personal loan for which you now think that bankruptcy is your best option, we urge you to rethink your decision. There are several reasons why we are saying this, but what you need to keep in mind is that recent bankruptcies of 2020 should not be the cause behind your decision!
Things to Keep in Mind
If you are wondering whether the bankruptcy court is still working and is it still possible to file bankruptcy, then the answer would be yes, the process is still in place. Personal meetings are not happening, but the procedure can take place over a phone call as well.
Now comes the question as to if you should file for it or not. Businesses that have completely gone out of business or those who would have to come up with a new plan from scratch even post-pandemic are the ones that would be considering this option the most. The highlighted names involve restaurants and theatres for which the world has turned upside down. However, there can be other businesses that might have taken a hefty amount of loan before the pandemic and are now not earning good enough to pay their loan back according to the payment plan.
While thinking about all the bankruptcies of 2020, this can be an option for everyone listed above and also for those who might have taken a personal loan for a house, you need to keep in mind that going bankrupt doesn’t necessarily translate to being completely free of your loan. While chapter 7 is considered a straight option out by selling all your assets, chapter 13 which is also called reorganization, and chapter 11 which is the same thing but for business demands you to start a new payment plan through which either the interest or the amount of loan is decreased but you still have to pay some part of your loan in the next 3-5 years. Plus, there is always the stamp that will stay on your credit for the next 10years if you choose to go bankrupt!
What Should I do then?
Our recommendation would be to only opt for this if it is the only thing you can do. The reason why COVID-19 is not just a reason because of which you would want to file for it is because of the relief plan. If you are getting funds from there, you are not obliged to include them in your payment plan which is a benefit for the debtor. Plus, because of the situation, there are certainly different levels at which government and personal investors are allowing ease in the payment process so you can always talk it out.
Lastly, if you still opt for bankruptcy, do keep in mind that you need to first consult an expert and only then start the process. Also, while the dates might be delayed for the hearings, the filing and fee processes should not be delayed!
Colorado Couple Sees $200,000 in Student Loans Forgiven
It is not often that you see student loans being discharged when a person files for bankruptcy. In fact, it so rarely happens that a lot of people have come to mistakenly believe that it is an unforgivable debt. This, of course, makes the new ruling by the U.S. Court of Appeals for the Tenth Circuit in favor of a Colorado couple all the more newsworthy. Rejecting the claims made by the student loan giant, Navient, that the couple’s debt was non-dischargeable under bankruptcy law, the court wrote an amount of $200,000 off of their student loans.
“This has been a huge part of my life for so many years now … It affects your whole life. It affects your relationship with your kids, your marriage — everything”, Paige McDaniel (wife) told the news. In another interview, she also told that the loan company had threatened to garnish her wages to recoup the debt before the couple filed for bankruptcy.
The ruling sets a precedent, a loosening of the student loan discharge law that erstwhile have been very rigid its interpretation. It also months after a separate ruling was made in favor of another student loan borrower, Kevin Rosenberg, who saw more than $200,000 of student loan debt discharged under Chapter 7 bankruptcy.
As of current, there are some 45 million Americans saddled with student loan debts, representing a combined amount of more than $1.6 trillion.
The average Chapter 7 bankruptcy petition is around 50 pages in length, so that means a lot of information is required on your side to complete the forms. Here is a checklist of essential documents usually required in a Chapter 7 Bankruptcy case.
Last 2 years of tax returns
6 months of paycheck stubs
6 months of bank statements
Up to date credit report
Driver’s license and Social Security Card
Current investment and retirement statements
Current mortgage and car loan statements
Any valid proof of home and car valuations
Property list with values (this includes personal items)
Valid repair estimates for damaged property
Credit card, collection, and other billing statements
A credit counseling completion certificate
The count may also require the following documents for verification of information provided in your petition:
60 days of paycheck stubs or any other proof of income
60 days of bank statements
Your most recently filed tax return (alternatively, a tax transcript)
A debtor’s education course completion certificate
In addition to the above, you might also be requested to provide further documents by the court trustee as part of their investigation of your filing. Among the most common items include:
Additional paycheck stubs and other financial statements
Profit and loss statements and proof of liability insurance (if you own a business)
Photographs and valuations of rare, antique, or collectible items
Marital settlement agreement or divorce order (if applicable)