Bankruptcy reform in 2005 restricted debtors’ ability to discharge private student loan debt. The reform was motivated by the perceived incentive of some borrowers to file bankruptcy under Chapter 7 even if they had, or expected to have, sufficient income to service their debt. Using a national sample of credit bureau files, we examine whether private student loan borrowers distinctly adjusted their Chapter 7 bankruptcy filing behavior in response to the reform. We do not find evidence to indicate that the moral hazard associated with dischargeability appreciably affected the behavior of private student loan debtors prior to the policy.
As the authors conclude that, absent any evidence of moral hazard by allowing borrowers to discharge private student loans, “policymakers are faced with the challenge of weighing the burden placed by restrictions to bankruptcy protection on struggling nonopportunistic debtors against the benefits of expanded credit availability.”
While certainly a valuable corrective to the prevailing belief that borrowers are the parties that game the system, this study is only partially accurate or complete.… Read More
The Prices, who are above median income debtors, but nonetheless have negative projected disposable monthly and no non-exempt assets, proposed an estimated 15% dividend to the class of dischargeable general unsecured creditors, which totaled $11,728.38. They also proposed to separately classify the $10,463.48 claim by Navient for non-dischargeable student loans. The Chapter 13 Trustee supported confirmation, but the Bankruptcy Administrator filed a limited objection to such treatment.
The bankruptcy court first addressed whether the prohibition in §1322(b)(1) against “unfair discrimination” in favor of one class of unsecured creditors was applicable as §1322(b)(5) allows the a plan to cure and maintain payments on “any unsecured claim … on which the last payment is due after the date on which the final payment under the plan is due.” While recognizing a split in opinions on this question, the court held that since §1322(b)(5) specifically applies despite the limitations in §1322(b)(2), it does not similarly explicitly override the “unfair discrimination” restrictions in §1322(b)(1). … Read More
Law Review: Taylor, Aaron & Sheffner, Daniel – Oh, What a Relief It (Sometimes) Is: An Analysis of Chapter 7 Bankruptcy Petitions to Discharge Student Loans
Conventional wisdom dictates that it is all-but-impossible to discharge student loans in bankruptcy. This contention, however, misstates the fact that bankruptcy discharge of student loans is possible—and it happens. This Article presents a statistical analysis of what happened when Chapter 7 bankruptcy petitioners in the First and Third federal judicial circuits filed 523(a)(8) adversary proceedings—or proceedings to discharge their student loan debt due to an “undue hardship.” In our analysis, we found undue hardship discharge rates of 54% in the First Circuit and 24% in the Third Circuit.… Read More
Tagged with: student loans
Bankruptcy Lawyers Cheer White House Focus on Student Debt
President Barack Obama signs a Student Aid Bill of Rights in the Oval Office of the White House in Washington, D.C., March 10, 2015.European Pressphoto Agency
The White House is exploring whether to make it easier for Americans to get rid of student loans through bankruptcy, joining consumer advocate groups and federal lawmakers who’ve been pushing for that type of investigation for years.
“We’re glad they’re making this a priority and hope Congress does also,” said Ed Boltz, a North Carolina bankruptcy lawyer who is president of the National Association of Consumer Bankruptcy Attorneys.… Read More
http://www.usnews.com/opinion/blogs/letters-to-the-editor/2014/08/26/federal-bankruptcy-law-almost-never-forgives-student-loan-debt… Read More
Tagged with: student loans
Hensel had student loans of more that $90,000. In November 2012, he received two bills for late fees in the total amount of $68.28. In response, on December 9, 2012, Hensel sent XBS a check for $68.28 attached to a letter that asserted the late fees violated the FDCPA, that assessment of the late fees had harmed his ability to purchase a home, and proposing to release his claims if XBS cancelled his remaining student loans, with cashing of the $68.28 to constitute acceptance. XBS did deposit the check and Hensel eventually sought a declaratory judgment that the student loans had been settled through accord and satisfaction.… Read More
The individual Chapter 11 plan proposed to pay approximately a 4% dividend to general unsecured claims, but separately classified his $235,871.00 in student loans, proposing to pay that class in full. No impaired class accepted the plan.
Accordingly, the plan could only be approved by fulfilling the requirements of 11 U.S.C. § 1129(b), which provides that the bankruptcy court shall confirm a plan that “does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan.”
The bankruptcy court held that a plan may discriminate in favor of nondischargable student loans, but only if such discrimination is not unfair under the four factor test from Ownby v.… Read More
The Debtor proposed a plan that would have paid roughly a 3.8% dividend to general unsecured claims, but would have separately classified his non-dischargeable student loans and paid them in full. The general unsecured class did not accept this plan.
11 U.S.C. § 1129(b)(1) provides the bankruptcy court shall confirm a plan that “does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan.”
“There can be ‘discrimination,’ so long as it is not ‘unfair’’” 7 Collier on Bankruptcy ¶ 1129.03 (16th ed.… Read More
The Debtor’s mother signed the Debtor’s signature on 11 student loans. After filing bankruptcy, the Debtor objected to the validity of the claims.
The Court began by reiterating that under 11 U.S.C. § 502(b0, ‘[claims that are unenforceable against the debtor or against property of the debtor . . . are simply not allowable for purposes of a right to share in a distribution of the debtor’s assets.” In re Easthaven Marina Group, LLC, No. 08-05453-8-JRL (Bankr. E.D.N.C. May 7, 2009) (Leonard, J) (quoting 4 Collier on Bankruptcy (15th ed. rev.) ¶ 502.03[b][iii]).
Pursuant to N.C.G.S. § 25-3-401, “A person is not liable on an instrument unless (i) the person signed the instrument, or (ii) the person is represented by an agent or representative who signed the instrument and the signature is binding on the represented person under G.S.… Read More