For instance, a 62 year old man with no dependents who could not find public or private employment in his educational field could not get a full discharge on his loans.  The man had a minimal income which consisted of a part time salary and some security benefits.

The court ruled that he was capable of maintaining a minimal standard of living if required to repay his student loan obligation of about $20,000.  That is because the lender had reduced his debt of  about $108,000, bearing interest at 7.75%, to $20,160 at 0% interest.  Had the lender not reduced his debt, it is likely that there would have been a full or partial discharge of the man’s loans.

In any case, if you are hoping to get your all of your student loans discharged you might be disappointed.  In some cases, “undue hardship” may be granted to debtors who suffer from a severe medical condition that prevents them from finding employment. Regardless, if you think you have a good case for full or partial discharge of your student loans, make sure to seek a reputable bankruptcy attorney to guide you in the right direction.

Stephen Trezza — Southern Arizona Bankruptcy Lawyer

When filing for Chapter 7 bankruptcy protection, taxes can be discharged under the following circumstances: (1) the taxes are limited to taxes on income. Taxes levied for fraud, payroll taxes or sales taxes do not qualify as dischargeable; (2) the tax debt must be at least three years old at the time of filing the bankruptcy petition (11 U.S.C. § 507(a)(8)(A)(i)); (3) you must have filed a tax return for the debt at least two years prior to the filing the petition (See 11 U.S.C. § 523(a)(1)(B)); (4) you must have received notice of the tax assessment from the IRS at least 240 days prior to filing the bankruptcy petition (11 U.S.C. § 507(a)(8)(A)(ii)); and (5) the taxes cannot be subject to a tax lien. A chapter 7 discharge of back taxes eliminates a debtor’s personal obligation to a debt, however, if the IRS recorded a tax lien on real or personal property prior to the date the petition was filed, the lien remains on the property. As with any legally obtained lien, the tax lien will need to be paid before the asset can be sold.

Whether or not taxes can be discharged is a complicated area of the bankruptcy law as certain events will toll the possible discharge of a tax such as prior bankruptcy filings, filing extensions, tax litigation and offers to compromise. If taxes are a reason you are considering filing for bankruptcy protection, you should consult a knowledgeable attorney for assistance before proceeding.

- Richard V. Stokan, Jr.

The purpose of the automatic stay is two fold.  First, it gives the consumer an opportunity to catch her breath by preventing collection attempts.  Second, it gives the bankruptcy trustee an opportunity to evenly distribute your assets amongst your creditors.  Essentially it stops any last second efforts by your creditors to try and get more money than they are allowed by law.  Remember that one of the overriding goals of bankruptcy is to treat all of your creditors equally.  The automatic stay encourages the equitable treatment of your creditors by allowing an impartial third party, the bankruptcy trustee, to divide your nonexempt assets equally amongst your creditors.  But the reality is that in most of the cases I see, there are no assets to distribute.  Therefore, the automatic stay’s main purpose is to stop unscrupulous lenders from trying to bully people into paying them when they have no obligation to do so.

The biggest advantage of the automatic stay is that it stops collection attempts dead in their tracks.  It even stops lawsuits your creditors brought against you.  If you are facing a wage garnishment, filing for bankruptcy stops that suit from proceeding until you receive your discharge.  At that point, the case can resume only if your debt was not discharged.  For example, if your credit card company is trying to garnish your wages, the automatic stay will stop that lawsuit.  And if your credit card debt is discharged, that suit is over.  But the automatic stay does not stop all lawsuits.  For instance, the automatic stay will not stop criminal proceedings or lawsuits concerning property that is not a part of your bankruptcy estate.

The automatic stay temporarily stops your creditors from: (1) making any collection attempts, and (2) bringing lawsuits against you to collect on your debt while your bankruptcy is pending.  In other words, the automatic stay gives you a temporary break from being constantly hounded by your creditors.  But the automatic stay does not last forever.  There are several events that lift the protection of the automatic stay. First, the automatic stay stops when a creditor successfully moves the bankruptcy court to lift the stay for a certain piece of property.  One of the most prominent examples of this is when a mortgage lender files a motion to lift the automatic stay so it can foreclose on a home.  Second, the automatic stay is lifted when a piece of your property is no longer considered a part of your bankruptcy estate.  Finally, the automatic stay is lifted when you receive your bankruptcy discharge.  At that time, your automatic stay is exchanged for the discharge.  At that point, your creditors are no longer allowed to attempt to collect on any of your debt that has been discharged.

Before you file for bankruptcy, it is important to grasp exactly what protections the automatic stay will provide you. First, although the automatic stay provides temporary relief from creditors, it probably won’t do much to help you if you are facing a foreclosure.  If you can become current on your home loan before you receive your discharge, then the automatic stay might help.  If not, then you really need to consider filing for chapter 13 bankruptcy.  Second, don’t file thinking the automatic permanently stops all lawsuits, because it does not.

Consult with a skilled bankruptcy attorney to help determine if filing for chapter 7 is the best way to address your problem.  In some cases, filing for chapter 13 is the better approach, and in yet others, it is best to do nothing at all. The automatic stay is a powerful tool, but it is not a cure all. Talk with an attorney so you can ensure that filing for chapter 7 bankruptcy is right for you

Topeka Bankruptcy Attorney

Once a garnishment has been put in place, debtors have few options. Pay off the debt, seek to challenge the garnishment in court, (if you are considering this option, it should be done before the garnishment is approved by the court) or file for bankruptcy protection. With a few exceptions, such as garnishment for child-support or domestic support payments, the automatic stay which accompanies a bankruptcy filing will stop a garnishment and in certain circumstances may even require the creditor to return garnished property. If the debtor is successful in obtaining a discharge in a Chapter 7 bankruptcy, the debts which lead to the garnishment will be erased. In a Chapter 13, the bankruptcy plan can result in dramatically reduced payments.

In the end, if you are facing a garnishment it is important to consider your financial situation and whether you will be able to financially survive with 25% less of your income. If not, and if you have sufficient debts to justify filing for bankruptcy protection, you should speak with a bankruptcy attorney as soon as possible to determine the best course of action. Waiting until the garnishment has drained savings accounts or confiscated tax returns will only benefit creditors.

- Richard V. Stokan, Jr.

When bringing such an action under § 523(a)(2)(A), a credit card company must prove the following elements of its case by a preponderance of the evidence:   (1) the defendant /debtor obtained money or property through a material misrepresentation he knew was false, or that he made with gross recklessness as to its truth; (2) the defendant/debtor  intended to deceive the credit card company; (3) the credit card company justifiably relied on the false representations; and (4) the credit card company’s reliance was the proximate cause of its loss.  See Grogan v. Garner, 498 U.S. 279 (1991); Longo v. McLaren (In re McLaren), 3 F.3d 958, 961 (6th Cir. 1993).

In a case premised on credit card transactions, “the representation made by the cardholder … is not that he has an ability to repay the debt; it is that he has an intention to repay.” Rembert v. AT&T Universal Card Services, Inc. (In re Rembert), 141 F.3d 277, 281 (6th Cir. 2003). Courts review the totality of the circumstances to determine, as a matter of fact, whether a debtor subjectively intended to repay the debt when he incurred it.

A Michigan bankruptcy court recently considered these issues in FIA Card Services v. Vernon May (In re May) and found that the plaintiff credit card company failed to meet its burden.  In other words, there was insufficient evidence that the debtor materially misrepresented his intention to repay, and the debt therefore could be discharged.  Some the facts considered by the court in reaching this conclusion included:  the debtor experienced an unexpectedly long period of disability; the debtor consistently made the minimum payments on the account and earned a favorable credit rating; and the debtor did not purchase luxury items or otherwise live lavishly. Instead, he purchased mainly for necessities.

The credit card company argued that fraudulent intent could be inferred because the debtor took out cash advances, using part of the cash to repay prior credit card balances.  The bankruptcy court rejected this argument:  “The evidence admitted at trial does not support any finding of “kiting” or a “Ponzi” scheme, contrary to [the credit card company's] unwarranted suggestion in its closing brief. Rather, it appears that a relatively unsophisticated borrower used assets (fungible loan proceeds) to pay expenses that he regarded as payment priorities….”

The In re May opinion offers some insight into how bankruptcy courts will analyze credit card discharge challenges.  However, every case is unique.  If you have already filed bankruptcy and been served with a credit card company’s adversary proceeding,  or are considering bankruptcy and fear that one or more of your debts may be challenged, talk to an experienced bankruptcy attorney in your jurisdiction.

-Drew Broaddus

As with the practice of any type of law, an attorney can only provide good advice if the client provides all of the necessary information. All too often individuals think they do not need to disclose an asset, debt or transaction because there is no way the court will discover it. However, this method of reasoning can lead to trouble that could have been avoided it disclosed to ones attorney. For instance, a bankruptcy trustee examines recent purchases and transfers. In certain circumstances, the trustee can also reclaim property or deny discharge of a debt it there is a determination that the property was fraudulently transferred or purchased. In that instance, a bankruptcy attorney can provide legal advice as whether filing for bankruptcy should be delayed or additional steps taken to avoid an adversary proceeding.

If you are considering filing for bankruptcy, the best time to gather documentation is now as some documentation may take several days or weeks to obtain from past creditors or financial institutions. Having the required documents in hand will enable your attorney to provide sound advice and expedite the process if your case is selected for an audit.

 - Richard V. Stokan, Jr.

Courts use different tests to evaluate whether a particular borrower has shown an undue hardship. A common test is the Brunner test, which requires a showing that (1) the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for the debtor and the debtor’s dependents if forced to repay the student loans; (2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) the debtor has made good faith efforts to repay the loans. Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987). Michigan, where we practice, is part of the Sixth Circuit, which applies this test.  However, not all federal circuits use Brunner; some courts may actually be more flexible.  Because the standard for discharging student loans can be different in different parts of the country, you should talk to an experienced bankruptcy attorney in your jurisdiction if you are considering bankruptcy and hope to discharge a student loan debt.

The difficulty of discharging student loan debt in the Sixth Circuit is underscored by this recent opinion. In this case, after filing a voluntary Chapter 7 petition, the debtor initiated an adversary proceeding, seeking discharge of her student loans.  The creditors who held the student loans vigorously opposed the adversary proceeding.  The adversary proceeding went to trial – complete with witnesses and exhibits – and the debtor lost.

In finding that this particular debtor did not satisfy the Brunner test, the court engaged in a detailed analysis of the debtor’s financial situation and job prospects.  This included a review of (1) child support payments that the debtor, a single mother of four, was receiving,  (2)  tax refunds the debtor had received since 2004, which were between $3,200 and $4,400 per year, and (3) unemployment and food stamp benefits she was receiving from the government.  The court also that, until recently, the debtor had lived in “Section 8” federally subsidized housing.  The court further mentioned that the debtor apparently spent $100 per month on internet and cable access as well as $50 per month on a gym membership.  Additionally, the court questioned whether the debtor was trying hard enough to save money on food, as her credit card statements indicated that she ate out too frequently in the court’s view (even though the debtor testified that she usually ordered from the “value menu” at various fast foot establishments).  The court even went as far as to point out that the debtor had apparently spent $120.00 in the past year at a casino:  “Even accepting the relatively small amount of the gambling expenditures, the fact of such expenditures undercuts [the debtor's claim] that she has minimized extraneous expenses.”

With respect to the debtor’s job prospects, the court essentially saw no unusual circumstances – apart from Michigan’s economy as a whole – which would prevent her from finding work in her degree field.  The debtor must show a “certainty of hopelessness” that their financial situation would improve.  The court in this case rejected the argument “generalized economic turmoil may serve as a substitute for a more case-specific evaluation of a student loan debtor’s future prospects.”  Finally, the court found that the debtor had not made a good faith effort to repay her student loans because she had failed to take advantage of various loan restructuring plans which were available to her.

This recent opinion confirms that, at least in the Sixth Circuit, a debtor will not be able to discharge student loans if they have even a possibility of improving their financial situation.  In this case, the debtor was a single mother of four who had not been employed since September 2008.  However, the court essentially found that because she was healthy and apparently employable, her outlook was not sufficiently bleak to pass the Brunner test.

-Drew Broaddus

Although adversary proceedings are litigated in the bankruptcy court, they are (once initiated) very similar to any other civil claim filed in federal court. This concept is reaffirmed in Ferguson Enterprises, Inc. v Hardy (In re: Hardy), an opinion recently issued by a Michigan bankruptcy court.  In this case, Plaintiff Ferguson filed a complaint against the Debtor-Defendant Scott Hardy, seeking an order excepting its claim from discharge under 11 U.S.C. § 523(a)(4) and the Michigan Building Contract Fund Act (“MBCFA”), M.C.L. § 570.151 et seq.  11 U.S.C. § 523(a)(4) provides that a bankruptcy discharge does not discharge an individual debtor from any debt “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” M.C.L. § 570.151 provides that, “[i]n the building construction industry,” the “contractor or subcontractor shall be considered the trustee of all funds so paid to him for building construction purposes.”

Before Mr. Hardy’s deadline for answering the complaint and before any formal discovery had taken place, Ferguson filed a motion for summary judgment.  Mr. Hardy responded to the motion with an unsworn document, entitled “Affidavit of Scott C. Hardy,” explaining that Mr. Hardy’s defense depends upon access to the books and records of his former company, Arms & Cole, Inc., which is itself a debtor in bankruptcy. The records were not in Mr. Hardy’s custody, and he believed he books and records would show that Arms & Cole is not indebted to Ferguson, and therefore Ferguson does not have a claim against him as a fiduciary under the MBCFA.

In deciding the motion, the bankruptcy court looked to Federal Rule of Civil Procedure 56.  This Rule, as amended effective December 1, 2009, no longer bars a plaintiff from moving for summary judgment during the twenty-days following commencement of the action.  However, the court retains considerable control over the timing of such motions. Because the motion filed by Ferguson was properly supported with documents and an affidavit, Rule 56 required Mr. Hardy to respond by affidavit (or otherwise as provided in Rule 56), setting forth specific facts showing a genuine issue of material fact warranting trial. Fed. R. Civ. P. 56(e)(2). If the responding party is unable to respond in this fashion, he may prepare an affidavit in accordance with Rule 56(f).

The bankruptcy court noted that Mr. Hardy’s supposed “affidavit” was not subscribed under oath before a notary, nor did it include the special language prescribed in 28 U.S.C. § 1746 for treating an unsworn declaration as an affidavit.   Had the affidavit been properly sworn, the court noted that it very likely would have denied the summary judgment motion on the grounds that Mr. Hardy required discovery.

By filing an unsworn statement, Mr. Hardy’s response fell technically short of what Rule 56 required.  When a summary judgment motion is supported and not opposed in the manner in which Rule 56 provides, “summary judgment should, if appropriate, be entered against that party.” Fed. R. Civ. P. 56(e). The court exercised its discretion under the “if appropriate” language of Fed. R. Civ. P. 56(e) and denied the motion for summary judgment, even though the opposing party did not technically oppose it in the proper manner, because the court believed that granting the Motion at this early stage of the case would be “hasty and ill-considered.”  The court indicated that it might consider such a motion again once adequate discovery has been completed.

This opinion clarifies that, in order to competently handle a bankruptcy adversary proceeding, a debtor or bankruptcy attorney must be familiar with the procedural rules that apply generally in civil litigation, as well as the rules of bankruptcy procedure.  In this case, Mr. Hardy’s failure to follow relatively basic procedural requirements in his affidavit was nearly fatal to his defense. If you have been served with, or are thinking about filing, an adversary proceeding, talk to an experienced bankruptcy attorney in your jurisdiction.

-Drew Broaddus

When creditors attempt to collect a debt that has been discharged in bankruptcy they violate the discharge injunction.  Debtors are entitled to compensation when a creditor intentionally violates the discharge injunction.  So when a creditor violates your discharge – make ‘em pay.

Steven Striffler
Attorney At Law
21 McGrath Hwy, Suite 301
Quincy, MA 02169
617-290-1573
www.quincybankruptcy.com

In Cassim, the debtor (Ms. Cassim) filed a Chapter 13 petition. She also filed an adversarial proceeding against Educational Credit Management Corp. to obtain a hardship discharge of her student loan.  Educational Credit filed a motion to dismiss the adversary proceeding for lack of subject matter jurisdiction, contending that the question of whether Ms. Cassim’s student loan debt is dischargeable was not ripe for review, since she had not yet received a general discharge under 11 U.S.C. Sect. 1328. The bankruptcy court denied the motion and entered an order providing for discharge of Cassim’s student loan debt upon the entry of a general discharge.

Educational Credit appealed the issue to the Bankruptcy Appellate Panel for the Sixth Circuit, which affirmed. Educational Credit then sought review from the Sixth Circuit Court of Appeals.  The Sixth Circuit noted that neither it nor the U.S. Supreme Court had previously addressed whether the issue of the dischargeability of student loan debt is constitutionally ripe for review before a debtor receives a discharge or will ‘imminently’ receive a discharge. However, in Educational Credit Management Corp. v. Coleman (In re Coleman), 560 F.3d 1000 (9th Cir. 2009), the court found that a the dispute such as this can be constitutionally ripe, even before the debtor has received a discharge pursuant to Sect. 1328.  Based upon this precedent, the court found that the case was constitutionally ripe.

In so holding, the court found it particularly significant that the bankruptcy court’s confirmation of Cassim’s plan was necessarily premised on a finding that she would complete the plan. While factual developments may occur (such as non-compliance with the plan) which would make it too  speculative that Cassim would receive a discharge under § 1328 – and in turn, make the controversy cease to exist – Educational Credit did not advance any facts to suggest that Cassim was particularly unlikely to receive a discharge.

-Drew Broaddus