Articles Posted in Chapter 13 Bankruptcy

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Sl-and-Bk-rule-changing
Ignoring your debtor’s federal student loans in their Chapter 13 bankruptcy can have catastrophic circumstances.  While fixing vehicle, credit card and mortgage debt, you may have inadvertently allowed a debtor’s $100,000 federal student loan to balloon into nearly $150,000 by doing nothing.  This is because the standard procedure of the Department of Education is to place these loans into forbearance during a bankruptcy.  However, now in Tampa, we are permitted to use the following Non-Conforming Provision in Chapter 13 Plans to permit our clients to enroll in Income Driven Plans and even Public Service Loan Forgiveness whenever eligible.

On January 5, 2018, Trustee John Waage and Judge Catherine McEwen agreed to the following Non-Conforming language in our client’s case, In re Hyland, 8-17-bk-01564-CPM that now allows for Income Driven Repayment Plans concurrently with a Chapter 13.

The permitted language:

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get-rid-of-sl-in-bk
There are a ton of people who believed their student loans were discharged when they loans were simply listed in their bankruptcy.  It may have been years before the private student loan companies started to communicate with the borrowers to collect this debt which added to that impression.

As it turns out, there may be a way to argue this after all – in instances involving private loans.  Private student loan lenders have to prove their loans are in fact “qualified education loans” and meet other criteria in order to be exempt from a general discharge.  We are now filing cases where we do not believe the private lenders can meet this burden and the loans are and should have been considered discharged all along.  This opens the lender and servicer to a potential FDCPA and FCCPA case if it has tried to collect on previously discharged debt.  Moreover, it also opens up the lender to potential claims to refund monies paid toward these loans since discharge.

An easy way around this would have been for the private student loan lenders to have filed their own adversary actions in the debtor’s bankruptcy to obtain a declaratory judgment that its loans were excepted from the general discharge.  However, this was never done.

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Are you expecting a large tax refund this year?

If so, and you have had some financial difficulties this year, do NOT file your tax return if you are in default on your federal student loans OR about to file bankruptcy.

Instead, some pre-planning is in order.  For federal students loans, cure the default before you file your taxes.  File an extension if you must to gain some additional time.

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auto-stayThe automatic stay that normally applies when a debtor files bankruptcy, does not work the same in a second or even third bankruptcy case.  This has caught many debtors unaware and may cause the loss of a home.

In a 2nd bankruptcy filing, the automatic stay expires after 30 days.  During that time you have to get it extended.  We recommend filing a motion to do so when the case is filed to have enough time to get an order entered before the stay expires.

Sometimes debtors find it necessary to file a 3rd bankruptcy.  Perhaps a job loss or insufficient paperwork caused the prior bankruptcies to be dismissed.  If so, it’s important to know that the automatic stay does not apply at all for a 3rd bankruptcy.  As soon as possible, the debtor would want to file a motion to impose the stay, even to the point of filing a request for an emergency hearing if a foreclosure sale is looming.  It’s also important to note that you cannot file bankruptcy on the eve of a foreclosure sale because there is no stay until you can get one in place.  Typically you would have to identify factors in the motion and at the hearing as to why this third case will be more successful than the prior ones that were dismissed, as well as show the feasibility of any plan to keep the home (which could include a loan modification at an estimated payment of 31% of your gross income).

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341-meeting
All debtors must appear at a meeting called the “341 meeting of creditors”.  Creditors may, but usually do not appear, and it is the Trustee asking most of the questions.  This 341 must occur for a bankruptcy to be successful and applies in both a Chapter 7 and 13.

The trustee will first verify your identity.  While this sounds simple, you must bring an original social security card or an original government issued document that shows your full social security number.  You’d be surprised at how many people think they know where they keep their original SSN card, but can’t find it when they are in a hurry about to leave to the 341 meeting.  So look for it early.  The meeting cannot be held without that documentation.

Also, make sure that your driver’s license has the exact name that is listed on your petition for bankruptcy.  If it is different, you’ll likely need to amend your petition to show that name and any other iterations of your legal name that you may use (“a/k/a”).

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Debtors are presently denied the opportunity to participate in income driven plans in a Chapter 13 bankruptcy in most of Florida.  Instead of allowing for an income based plan, the federal government places these loans in forbearance for the typical five year plan.  Do you know what happens to a federal student loan in forbearance for five years?  It balloons from 100k to 150k.  How does that help to provide a fresh start?

We are attacking this unfairness now in a case we are spearheading in Tampa, Florida.  Our client is being denied participation in IBR and Public Service Loan Forgiveness by the DOE’s policy.  The time is ripe for our Tampa Judges to address this.  While we undertake this challenge, the model plan which does not address this problem is up for revisions and there is comment period which expires August 31.

If you want to help us in our battle for student loan relief, please take 30 seconds to post a comment here before 8/31: http://pacer.flmb.uscourts.gov/localrules/comments-with-form.asp.  Just say something like it is unfair for debtors to be disallowed from participating in governmental income based/debt forgiveness plans just because they file bankruptcy.

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household
The word “household” appears in over a dozen sections of the Bankruptcy Code, but it is not defined in the Code.  Household income and size are extremely important in bankruptcy and determine whether someone qualifies for a Chapter 7 or the length and amount of a plan payment in a Chapter 13.  A debtor’s median income is determined by their family size.

In a Chapter 7, a bankruptcy debtor’s above – or below – median status determines whether the debtor is subject to the means test.

In a Chapter 13, a bankruptcy debtor’s status as above – or below median determines whether the debtor’s maximum plan term is three or five years.  It also determines whether the debtor’s expenses, for the purpose of calculating the debtor’s projected disposable income, are based on the means test or Schedule J.

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https://www.tampabankruptcylawyerblog.com/wp-content/uploads/sites/10/2015/07/christie_d._arkovich_p.a_1_small.jpgOne of our most successful cases this month was the discharge of private student loans for our client who attended a Caribbean medical school.  The key was that the foreign medical school was not listed on the Federal Schools Codes List as being eligible for federal funding.  That particular fact allowed us to obtain a full discharge of several hundred thousand dollars in private student loans.  The loans were not “qualified educational loans” as that term is defined by the Internal Revenue Code and therefore were dischargeable under Section 523(a)(8) in an adversary proceeding.

This case, In re Lysiuk, Case No. 6:16-ap-00124-CCJ is available here.  It was decided by Bankruptcy Judge Cynthia Jackson out of Orlando, Florida.

This case was not brought as a typical undue hardship.  I felt it would be exceedingly difficult to prove under the existing Bruner Standard that our client met the burden to discharge his loans based upon hardship.  While he was only making $10/hour when we filed the case, he was potentially capable of much more (despite being unable to pass the medical boards) and was young and healthy.  So instead we chose to go the route of a more technical argument that was gaining ground in the United States but was still an issue of first impression in Florida.

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magnify-glassIt is very important to correctly reflect the assets of your bankruptcy estate and your intentions as well as meet all the other requirements to properly file a bankruptcy.  Documents that appear thorough, accurate and complete when filed, tend to receive far less scrutiny.  When in doubt, disclose, disclose and disclose.  If the bankruptcy trustee believes a debtor, or even worse, debtor’s counsel, has not fully and truthfully disclosed all of the requested information, that trustee will question the debtor endlessly, and will also request documents from the debtor to prove the information in the petition.  It’s important to hire competent and experienced bankruptcy counsel who has a good relationship of trust with the Chapter 7 and 13 trustees for this reason.  Proper preparation of a bankruptcy petition is one of the most important things a debtor and debtor’s counsel can do:

  • It ensures a quick and smooth 341 examination;
  • The more complete the documentation is, the less questions a trustee needs to ask;
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