Posted by Sidney Diamond on Fri, Aug 28, 2009 @ 05:14 PM
The "Means Test" became law as part of the Bankruptcy Consumer Protection Act Of 2005. The test is mandated by the bankruptcy code including a long, vague and confusing explanation of exactly how to set up the test, which was left to the Office of the United States Trustee. The backbone of the test is derived from the Internal Revenue Code. The test has gone through more than a few changes as people in charge attempted to make the test fit the statute and has been subject to a number of court rulings both by the Bankruptcy Courts and the Courts of Appeal. Two (2) changes that have recently taken place are:
The Court of Appeals for the Fifth Circuit, the Appellate Court that Texas is subject to has recently ruled on whether or not a debtor is entitled to an "Ownership Expense" deduction when the vehicle is paid for. The Court ruled that a debtor is entitled to an ownership expense deduction regardless of whether or not there is a debt against the vehicle.
Is a debtor entitled to an additional deduction with a vehicle that has high mileage? Obviously a car that has low mileage costs less to operate than a vehicle with high mileage. The Office of the United States Trustee has determined that a debtor is entitled to an extra deduction for vehicles that have over 200,000 miles on them. Exactly how much of a deduction is unclear at this point and is apparently determined on a case by case basis.
The result of the foregoing is that the bar has been lowered to some extent as to whether or not a debtor can be eligible to file a Chapter 7 bankruptcy rather than a Chapter 13 bankruptcy.
Posted by Sidney Diamond on Wed, Aug 19, 2009 @ 12:20 PM
In an average bankruptcy case, regardless of the chapter (7,13) filed, student loans are not dischargeable. In the Western District of Texas, payments on student loans may not be included in a Chapter 13 Plan unless such plan proposes to pay the unsecured creditors 100% of their claims. Instead, student loans are deferred until after the Chapter 13 plan has been completed. All the while interest is accruing on these loans.
There are possibilities that present opportunities to discharge student loans, as set forth below:
1. The opportunity to discharge a student loan is to determine whether or not the loan made is actually a student loan. The provisions of the bankruptcy code dealing with student loans are very specific, although very broad as to what constitutes a student loan that is non-dischargeable. Therefore, each loan must be examined to determine whether or not the loan is of a type that falls within the definition of the statute. If it does not, then the loan is dischargeable like any other unsecured claim.
2. The opportunity to discharge a student loan is set forth in the statute and reads in part "unless accepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents, for..." The burden of proof a debtor must overcome is very high but not impossible. What constitutes "undue hardship" is in fact driven and therefore is dependent on the facts in each case.
3. A potential opportunity that is presented is more complex and deals with the situation where a loan was made but the educational institution failed to furnish that which was promised at the time the loan was made. An example of this type of situation is where an educational institution failed before the institution furnished or completed the course(s) and the student was unable to transfer all or any portion of the credits that would have been received to a second institution. Whether or not this type of situation would allow the loans to be discharged would in all probability depend on the relationship between the financial institution making the loan and the educational facility.
All of the above is complicated by a case decided by the Supreme Court commonly referred to as "Seminole". The case limits the Bankruptcy Court's jurisdiction to decide certain issues if they only involve States rights. Therefore, if the student loan referred to is made by a state institution and does not involve any federal institutions, the court may not have the power to hear and determine any of the above.