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Discharging Student Loan Debt in Bankruptcy

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Discharging Student Loan Debt in Bankruptcy

As the student debt crisis grows, more bankruptcy filers are seeking discharge of their student loan debt. Be prepared to assist clients burdened by student loan debt get the fresh start they deserve. Discharging Student Loan Debt in Bankruptcy will explore the treatment of student loans in bankruptcy including determining a client’s eligibility for discharge. This program will guide you through the process of litigating student loans in bankruptcy court from case evaluation and intake to trial and discuss the recent policy change designed to provide a more expeditious process for discharging student loan debt.

Transcript

Hello and welcome to Discharging Student Loan Debt in Bankruptcy. My name is Natalie Jean-Baptiste, and for the next hour, I will be teaching you about the process of discharging student loan debt in bankruptcy. Now, it's a more important topic than ever because the Supreme Court recently blocked student debt relief and students are or student loan borrowers are looking for alternative ways to eliminate student loan debt. And bankruptcy is one of the most overlooked ways to to get rid of student loan debt because of the myth that's perpetuated that it's impossible to discharge student loans in bankruptcy. And that's simply not true. So let's get into the material. Okay. So let's talk about why this course is important. So as a student loan debt crisis grows, more bankruptcy filers are seeking discharge of their student loans, and recent policy changes have made it more important than ever for bankruptcy attorneys to analyze the debtors student loans for discharge. And this is for consumer bankruptcy attorneys, anyone in the debt relief space or student debt relief professionals. So the key takeaways for today would be to you'll be prepared to assist clients burdened with student loan debt to get a fresh start in bankruptcy. And you'll learn about how student loans are treated in bankruptcy and you'll understand how to litigate the discharge ability and the steps of filing an adversary proceeding. Okay, so before I get into the material, I want to share a little bit about my background. So I started doing this work because I struggled with my own student loan debt. When I came out of law school, I was working in the music industry and I had a massive student loan and I, you know, acquired other debts as well. So I decided to file for bankruptcy. And I represented myself. And through the process, I learned about the undue hardship exception to the general rule that student loan debt is not dischargeable. So I decided to bring an adversary proceeding. And through that process, I was able to settle my $156,000 student loan debt for $36,000. So I wiped away 120 K of student loan debt through this process. So after I was successful in my own case, I developed a passion for helping other people in the same situation. So I started my own practice. And I've been helping people discharge student loan debt now for over a decade. So this is something I'm really passionate about and I'm glad that student loans are getting more attention in the press and people are looking for answers. So now is a good time to get into this space. So our agenda for today, we're going to cover the basics of bankruptcy, especially for those of you who don't practice in this area or don't know much about bankruptcy. Next, we'll touch on section 523 eight, which is the section of the bankruptcy code that governs the discharge ability of student loan debt. Then we'll discuss what a qualified education loan is. Then we'll focus on establishing undue hardship. And that's really the bulk of the arguments that are made to discharge a student loan. And I'll go over drafting the pleadings. Discovery, the treatment of student loans in Chapter 13. And last but not least, we'll go over the new guidance that the DOJ released last fall on the discharge of federal student loans. Okay. So before I get into the material, just a little bit of background and some facts and figures. Right now, the student loan debt in the US is more than $1.75 trillion, and that's more than any other debt besides home mortgages. 45 million Americans have student loans, so that's 1 in 5 adults have student loan debt. And also the important to keep in mind is that 92% of all student loan debt is federal and the remaining is private. So remember that student loans are either federal or private. So it's important to know what type of loan you're dealing with because the approach is going to be different. So this slide just gives you some of the differences like, well, you know, the difference in interest rates, the repayment options, loan forgiveness, the default consequences, things like that. So. The way you would approach, you know, the solution to eliminating it would be different based on depending on what kind of loan it is. Okay, So the way you figure out what type of loan the the borrower has, the first is to check the federal student loan database, and that is on Studentaid.gov. So the client must log in. And retrieve their records and send them to you. It's important that you don't access this account because it's illegal for any third parties to access the student takeover account. Okay, so here is just a screenshot of what it looks like the account dashboard to see the details of the loan. So. It's going to have all the information, including the amount, the interest, the type of loan it is, the status of the loan, things like that, the disbursements, dates, everything is on or in that date database. Um, when we're discussing private loans, you can check the promissory note or the credit report. The client can get copies of all three of their reports on annual credit report.com. So essentially, if anything is on the credit report, that's not on the federal government's website. You know for sure that it's a private loan. Okay. So now I'm going to lay the groundwork and, you know, talk about what bankruptcy is and how it works before we get into how to discharge a student loan in bankruptcy. Okay. So bankruptcy is a legal process established under federal law to allow people who cannot pay debts to eliminate or discharge the legal obligation to pay most or all of certain types of consumer debts and to obtain a financial, fresh start. And it's founded in the United States Constitution. So Article one, Section eight authorizes Congress to enact uniform laws on the subject of bankruptcies throughout the United States. Under the grant, this grant of authority, Congress enacted the bankruptcy code in 1978. The fundamental goal of the federal bankruptcy laws is to give debtors a financial, fresh start from burdensome debts. Right. So also bankruptcy is a court of equity, right? So the purpose is twofold. So you want a fresh start for debtors, but also a fair distribution for creditors. So this is one of my favorite quotes that describes what bankruptcy is, and it definitely applies to student loan borrowers. So it says it's from a 1934 Supreme Court decision. It says bankruptcy gives the honest but unfortunate debtor a new opportunity in life and clear field for future effort unhampered by the pressure and discouragement of preexisting debt. So in my view, student loan borrowers are the poster child for the honest but unfortunate debtor. Right. Because most people take on student loan debt when they're 17 or 18 years old and they don't understand the consequences and the impact that it's going to have. And they are taking on this debt because they believe that their degree that they're pursuing is going to open up doors and make life better. But sometimes in reality, it just it you know, some people have the debt but with no degree. So, you know, this Supreme Court decision, quote, just encompasses why student loans should be dischargeable. Okay. So more about the basics of bankruptcy. So the the goal is accomplished through the bankruptcy discharge. And this is what releases the debtors from personal liability from specific debts and prohibits creditors from ever taking action against the debtor to collect these debts. The debtor is no longer legally obligated to pay any debts that are discharged. Okay. So there are two types of consumer bankruptcy. Right. So the first one is the one that most people think of when they think of bankruptcy. It's a Chapter seven and it allows the debtor to discharge most unsecured debt. It's a liquidation plan in which most non-exempt assets are used to satisfy debts owed to creditors. All right. So moving on. So we're chapter 13 is what's known as a wage earners bankruptcy. So the debtor must have regular income to repay some portion of their debt through a court approved plan within 3 to 5 years. And the debtor keeps all of their property, including non-exempt assets. Okay. One of the beauties of bankruptcy and what makes bankruptcy so such a great solution for so many people who are struggling with debt is something called the automatic stay. Right. So as soon as the case is filed, all collection efforts must stop. Right. So any collection calls and letters, any lawsuits, if there's an active wage garnishment, that has to stop. If they're in the process of a foreclosure or a repossession. The bankruptcy law dictates that all of that must stop. So just that's one of the bigger beauties of bankruptcy. Okay. So one of also you need to know the difference between a dischargeable and a non dischargeable debt. So dischargeable debts are, you know, the most common debts like credit cards, medical bills, personal loans, auto loans, payday loans. But for public policy reasons, certain debts are not dischargeable. So that includes taxes, child support, alimony, any government fines and penalties, any debts related to drunk driving accidents. And student loans are also included in that category. Okay. So something called the bankruptcy attorneys have, you know, coined this term, chapter 20. And there's no actual chapter 20. But it's a way that you can manage student loan debt in bankruptcy. Right. So if the client. It has a lot of other debts, right? Like medical bills or credit cards. You filed a Chapter seven to wipe out all of the dischargeable debt and then filed a third team to manage non-dischargeable debts like taxes or student loans. Okay, so now we're at the point where we're going to discuss Section 523 eight, and this is the provision of the bankruptcy code that restricts student loan discharge ability. So just remember that student loan debt is presumptively non-dischargeable. But. The code provides that the student loan can be discharged if it imposes something called an undue hardship. Right. So. For any educational benefit. Guaranteed by a governmental unit or a nonprofit institution and also an educational benefit, scholarship or stipend. And then in 523 a, B, this was introduced in 2005, and this covers private student loans. So it's any other educational loan that is a qualified education loan as defined by the Internal Revenue Code of 1986. And it's incurred by a debtor who's an individual for the legislative intent of. 523 eight. There are two purposes. So it prevents undeserving debtors from abusing the educational loan programs by declaring bankruptcy immediately after graduating. And it preserves the financial integrity of the student loan program. So first, you know, this was sort of implemented as a preventative measure. There is no, you know, stats or showing that, you know, people were actually abusing the system, but they wanted to make sure that if someone got, you know, an advanced degree, especially doctors, lawyers, dentists, architects, that they wouldn't just run to bankruptcy court after getting their degrees. And then, of course, to preserve the financial integrity of the student loan program. But this is back when the program actually had integrity. I think it lost its integrity a long time ago. Okay, so, um, keep in mind that when you are seeking to discharge a student loan, it there's a separate process called the adversary proceeding. So it's, it's basically a lawsuit inside of the bankruptcy, right? So the federal rules of bankruptcy procedure requires the debtor to file an adversary proceeding to determine the discharge ability of a student loan. And it also the code gives the bankruptcy court the power to enter final judgments, determining the discharge ability of debts. Okay. And the debtor can file a complaint at any time. And the rule also permits a debtor to reopen a closed bankruptcy case to file an adversary proceeding without paying an additional fee. So and the debtor must file a motion to reopen the case. So I've reopened old cases so clients will come to me, you know, years after they initially filed for bankruptcy. And their attorney told them at that point, oh, there's nothing you can do about your student loan. But after they find out about me and they realize that it's something that is possible, then what I do is file a motion, reopen the case, and then once the motion is granted, then I file the adversary complaint. And keep in mind, you know, this can be five years later, ten years later, it doesn't matter. There's no time limit on when a case can be reopened. Okay. So when you're drafting the pleadings, one of the most important parts is to identify the right defendant. Right? So you have to name the proper parties. So most for all the direct loans it's held by the US Department of Education. So the US Department of Education is going to be the defendant. Right. And for what are called FFL loans, which are sort of a hybrid. They are guaranteed by the federal. Guaranteed by the federal government. But the lender is private and usually they're held by a guarantee agency like E-c-m-c and you have to name. The Department of Education. The current servicer and the Guaranty Agency as defendants. So when you're trying to figure out who the defendants are, who you need to name in the lawsuit, you have to check the student aid.gov. Database that I was referring to earlier. And you research who the lender is, who the servicer is, so that you can make sure that all the proper parties are named. And then for the private loans, you just check the credit reports. Okay. So when you're drafting the complaint, the first thing you're going to address is jurisdiction. Then you address venue. The next part is like the really the heart of the complaint, which is the statutory basis for discharge. Right. So. Um, first you'll address whether or not the loan is a qualified education loan. So this is only relevant for private student loans. Then, depending on which jurisdiction you're in, you're either going you're going to argue undue hardship under either Brunner or the totality of the circumstances test. And then you'll lay you'll give the factual background. Right. And this is a the most important part of the complaint is sharing your client's story, really painting the picture. And helping the court and the adversary understand, you know, how your client got here and why they're having difficulty paying their loans and why they should get a discharge. And then at the end, you put in the prayer for relief. And I will include a sample complaint for you to refer to so you can have at least a framework of how to draft the complaint. Okay. So. When the plaintiff because the plaintiff is the debtor, there is no filing fee to bring the adversary proceeding. And then you would file the complaint and make sure you include the adversary proceeding cover sheet. It's a two pager and it just has basic information about the case. And in most jurisdictions, the clerk is going to issue a summons that you're going to serve with the complaint. But in some jurisdictions, the plaintiff's attorney has to prepare the summons. Okay. Serving the adversary complaint. That's also an important component of this. So you have to serve a copy of the summons and complaint on all defendants. And then when it's a federal student loan, you have to make sure you comply with the rules of serving the US government. Right. So the you have to serve the US Attorney General and the Department of Education in DC, and then you have to serve the US Attorney's office in your district. So you find out you know, the address of the US Attorney's office in whatever district you're practicing in, and because that office is the one who's going to be essentially who you're working with when you're dealing with a federal student loan. Okay. So now we'll talk about what is a qualified education loan. Right. So keep in mind that if it's a federal loan, we assume it has the assumption that it's a qualified loan. So this is only with respect to private loans. And it's important to note that the initial burden to prove that the loan is a qualified loan is on the creditor. Right. So qualified education loan has to have all three of these criteria. It has to be for qualified higher education expenses. It has to be for an accredited institution by an eligible student. So I'll get into what all of that means. So in eligible schools. So if the client school is not on the title for eligible eligible school list for the year that your client attended, then it's not a qualified loan. The loan could not be a qualified loan. Okay, so some examples of ineligible schools include foreign medical schools. So, you know, people who pursue medical degrees overseas. But these loans are they take out federal student loans, but these are not eligible institutions. Those loans are dischargeable. Another example is flight school. So in this case, the Adams case, the debtor borrowed money to attend Desert Sun Helicopter Academy, which was not an eligible institution. Therefore, the loan is dischargeable bar study courses. This is an important case as well. This is in the Eastern district of New York, Campbell versus Citibank. So the court determined that a bar study loan is not an educational benefit within the meaning of the statute, and it's not a qualified loan and therefore it's dischargeable. So in this case, they were debating what the word benefit means. So according to the court, we're not looking at the general definition of benefit. Obviously, the person derives a benefit from the bar study course, but they're using benefit in the context of something like a Social Security benefit or unemployment benefit. So in that case, it was determined that the bar study course loan was dischargeable. So an eligible student has to be a US citizen or permanent resident and they have to be enrolled at least half time. And if if they're male student, they have to be registered with the Selective Service and they must have a high school diploma or GED or pass an approved ability to benefit test. So. If they don't meet these criteria, they're not an eligible student and therefore the loan is dischargeable. Right. So for for a loan to be a qualified loan, it has to be incurred solely to pay for qualified higher education expenses. So that includes tuition and related expenses required for enrollment in a course at an eligible institution. And the related expenses are the student activity fees and expenses, for course, related books and supplies. They're only included if the expenses must be paid to the school for enrollment or attendance. Okay. So again, I mentioned this earlier, but the burden is on the creditor to establish that the debt is an educational loan and it falls within 523, a debt that's incurred for housing, transportation or living expenses to support full time attendance are not qualified education expenses since the funds were not employed for an educational purpose and therefore they're not accepted from discharge. Unpaid tuition. This is a big one. It's not an it's not a student loan. Right. So when we're talking about unpaid tuition, a an adversary proceeding is not even necessary because it doesn't fall into a definition of a student loan. It's just an unpaid balance to the school. So that just gets included in the list of debts on schedule F and it should be automatically discharged. And you should not have to litigate unpaid tuition. Okay. So this is like one of the major things when it comes to private student loan. The private student loans would be dischargeable if it exceeds the cost of attendance. Right. So the cost of attendance is determined by the school and it includes tuition, books, room and board. And the school must publish their cost of attendance every year. And the lender, if it's a private lender, they have to get certification from the school for the amount. So any amount lent in excess of the cost of attendance is not a qualified education expense. So this is a list of dischargeable, quote unquote, student debt. Right. So if it's a credit card incurred by a student loans for unaccredited programs, unpaid balances owed to the school, anything for K through 12, which is not a college expense and anything for overseas schools. Um, if there's a question about whether the loan is a qualified loan, do not plead facts that admit that the loan is subject to 523 A and then you don't want to check the box that says student loan obligation on schedule F So if you anticipate that you're going to be bringing an adversary proceeding for private student loans, do not check that box. Okay. So here we're going to be discussing undue hardship. And this is the main this is like the meat and potatoes of this presentation, right? So establishing that your client, you know, would face a hardship if they had to repay the student loan. So the majority of the bankruptcy courts use what's called the Brunner test, and it's adopted by all the circuits except first and eighth Circuit. And the burden of proof is on the debtor to establish undue hardship by a preponderance of the evidence. So there are three prongs that the debtor must establish. They have to establish that they can't maintain based on their current income and expenses, a minimal standard of living for themselves if forced to repay the loans. Right. So this means, you know, the basic necessities housing, food, transportation, medical and dental care. So meaning if they were forced to pay the loans. They wouldn't be able to afford their basic needs. The next part is, are there additional circumstances that indicate that the state of affairs is likely to persist for a significant portion of the repayment period? And the last is whether or not the debtor has made good faith efforts to repay the loans. The other test that's used to determine undue hardship is something called the totality of the circumstances test. And this is adopted by the eighth Circuit and some courts in the First Circuit. So the bankruptcy court must consider the debtor's past, present and reasonably reliable future financial resources. The next is they'll look at a calculation of the debtor's and her dependents reasonable and necessary living expenses. And last, they'll look at any other relevant factors and circumstances surrounding each particular case. Okay. So under the totality test, the multiple factors are considered, including total present and future incapacity to pay the debt, not in the debtor's control. Good faith effort to negotiate a deferment or forbearance, whether there's a long term hardship. And whether the debtor made any payments on the loans. If there's a permanent or long term disability, can the debtor find gainful employment in their area of study? Efforts to maximize income and minimize living expenses. And whether the dominant purpose of the bankruptcy was to discharge the student loan debt and the ratio of student loan debt to total debt. Okay, So we're just going to dive a little deeper into the Brunner test and the minimal the different factors, right? So when we're looking at the first prong of the Brunner Brunner test, we have to determine whether or not the debtor's expenses are reasonable. Right? And then we also consider any unique expenses related to their dependents. So if they have a child with a disability or medical condition, Um, and just to summarize what a minimal standard of living includes, this is the list that we look at and the courts will look at. So that includes decent shelter and utilities, food and personal products, vehicles maintained insured and tagged. Health insurance or the ability to pay for medical and dental expenses when they arise. At least a small amount of life insurance and funds for recreation like cable or pet. Okay, so this slide just has a few examples of illustrating what the minimal standard of living is, so I'll skip that. So you'll refer to it later if you need to. Um, so again, this is just a list of everything that's considered reasonable and necessary food, housing, utilities, basic communication. So that would be internet like basic internet. Um, necessary medical and dental, necessary insurance, transportation, child care, child support and alimony. So this is a list of what the court or the adversary would consider a quote unquote luxury. Right? So when they're evaluating the debtor's expenses, if there's a lot of dining out, even a gym membership, premium, cable premium, cell phone service, any salon, spa, cosmetics, concert tickets, vacations, alcohol and cigarettes. So these are things that the adversary is going to be examining when they review the debtor's bank statements. So keep that in mind. Okay. So the second prong, the additional circumstances. So, ah, here we're looking at are there additional circumstances that more likely than not the hardship will continue? And, you know, the old standard was, you know, can the debtor prove a certainty of hopelessness? Now, obviously, the standards are relaxed a little bit, and we'll get into that more when I discuss the new DOJ guidelines. But you look at factors like the person's age, their children, how many children or their children's expenses, has their earning capacity peaked? You know, how long will their current circumstances continue? Okay. So this is also just a list of cases that illustrate the additional circumstances factor. Okay, so the last prong of the Brunner test is something called the good faith test. So this looks at the debtor's efforts to maximize their income. It also looks at their past career decisions. Right? So this can be bad for ministers or clergy, artists and musicians, public interest lawyers. Things like that. So before this new DOJ guidance was released, this was sort of more like a subjective, more like a morality question, like, well, why did you become a musician? Well, you could have went and worked for a corporation and made money to pay back your student loans. So that is less relevant, you know, under the new DOJ guidelines. And in the Mosley case, the court determined that being too poor to make payments is not bad faith. So when the court is evaluating these cases, even if the debtor has never made a payment, it's not necessarily bad faith. If you look at their budget and you see that clearly, they couldn't afford to make a payment. So there was no way that they could, even if they wanted to. Okay. So this slide again, just a few cases that illustrate the good faith factor. So I'll get into some of it. So here in the first one, the King case, the debtor satisfied good. The good faith factor because the debtor made efforts to maximize income, minimize expenses and obtain employment. He communicated regularly with his lenders and was conscientious conscientious in paying his loans when he could. In the next one. The debtor is satisfied. Good faith factor because he waited a substantial period of time before acknowledging that his medical and financial conditions required him to discharge his student loans. Because that's important as well. If someone has been struggling for many years to repay the loans, you know, that's an indication that they did have the intention of repaying the loan. Right. And in the last example, the debtor failed the good faith standard because although the debtor sought deferments, she made no attempt to avail herself of other repayment options. Him. So partial discharge. So the courts are divided regarding whether they have the authority to discharge a portion of the student loan while declaring the remainder non-dischargeable. So there are different approaches to this. So the strict approach is an all or nothing approach, right? So the courts conclude that 523 eight contains no statutory language that would authorize a partial discharge of a student loan, and that authorizing partial discharge leads to unpredictability and lack of uniformity. So these two cases take on the strict approach. And then there's the flexible approach. So the court's willingness to discharge a portion of the student loan, so discharge a portion of the debt that created the hardship but requires the payment only to the remaining portion. But keep in mind that the debtor must generally satisfy the Brunner or the totality test standard as to the discharge portion. Okay. And then there's the hybrid approach, right? So for the hybrid approach, it forbids partial discharge of a single loan, yet allows debtors who hold multiple loans to discharge some of those loans, but not others. So it's like on a loan by loan basis, right? So some may discharge while others are found Non-dischargeable. Okay. So now discussing the income driven repayment program, participation in an income driven repayment program is not required to establish an undue hardship. And this was determined in the Mosley case. The fact that a debtor can afford the monthly income driven repayment is not dispositive as to whether she can maintain a minimal standard of living while repaying the student loan. Okay, so discovery. So keep in mind that when you're seeking to discharge student loans, we are talking like a full out litigation. So discovery is part of that process. Okay. So as the plaintiff's attorney, these are the documents that you would. That you would have to turn over to the lender. These are typical document requests from the defendants when the adversary is filed. So the clients and these are things that you should review and have access to before the complaint is even filed. So tax returns, pay stubs, bank statements, retirement account statements. So all the financial records, employment records or the proof of the debtor's efforts to find work. Right. So if you have, you know, all of the cover letters that they've sent out or the applications that they've submitted online and records of their efforts to find work. If there's any type of medical issue involved, copies of the medical records, and then also proof of their expenses. So all of their monthly billing statements, a copy of their lease, car loan, mortgage statement, things like that, So you can have an accurate documentation of what their monthly expenses are. Okay. So typically the. Defendant will also send over release forms. So all the debtor has to do is sign off on them so that they can obtain the information. So. There's one for taxes so they can get the tax documents, the Social Security consent and release of information. There's also a consent and authorization to release employment information so they can send that to former employers. And then also the form to release medical information for HIPAA. Okay. And as far as the documents that you as the plaintiff's attorney would request, that includes the loan records or the copies of the promissory note, the debtor's application for deferment and forbearance and correspondence between the borrower and the servicer and documents related to the disbursement of the loan. Okay. So. One of the great ways to manage student loans is in chapter 13, right? So if the debtor doesn't qualify for a chapter seven, then they have to be in a 13. And student loans can be managed that way as well. Right? So they can pay their loans through the Chapter 13 plan. And the Department of Ed has consented to allow debtors to participate in the income driven repayment plans while in a Chapter 13. And these are what's known what are known as the Buchanan provisions. So these provisions need to be included in the plan in order for the student loans to be paid through the plan. They have to indicate that the debtor is not seeking, nor does the plan provide for any discharge of their student loans. The debtor shall be allowed to seek enrollment in any of the IDR plans with the US Department of Ed or the Servicers without disqualification due to their bankruptcy. So prior to Buchanan, you know, they wouldn't the the borrowers would not be eligible to participate in IDRs. Also the it has to include language that while the case is pending, it's not a violation of the stay for the servicers to communicate with the with the borrower. So that includes like letters about late payments or delinquency, any phone calls and emails. So one of the reasons why. You know, the Department of Ed, you know, before Buchanan, you know, was reluctant to let student loans be part of the Chapter 13 plan, is that they felt like it was a set up for them to violate the stay. So, you know, as long as this language is included, then you know that. You know that that's covered and that's not something they need to worry about. Okay. So, you know, these are a few of the reasons for classifying student loans, credit student loan creditors separately from other unsecured creditors in a Chapter 13 plan so they can state the borrower can stay current on their IDR. They make progress towards 20 or 25 year cancellation or ten years. If we're talking about public service loan forgiveness, they maximize payment towards non-dischargeable debt and they avoid accrual of post-petition interest. And one of the beauties of doing a Chapter 13 when it comes to student loans is that Chapter 13 has what's called a code debtor state. So that means that the co-signer is protected as well. So when we're talking about private student loans, nine times out of ten, it's going to be cosigned by a family member like a parent or a grandparent or other relative. And sometimes it's cosigned by an ex spouse or a spouse or a ex boyfriend or something. And that also causes an extra layer of stress when it comes to the student loan, because when the borrower becomes delinquent, it causes problems for their cosigner. So even if the person may be eligible for a Chapter seven, you may opt for a Chapter 13 when there's a cosigner involved so that they can manage it through the Chapter 13 plan and knowing that their cosigner won't be affected by negative reporting or calls from the from the lender. All right, So now we've come to the last section, which is the DOJ guidance on the discharge of student loans in bankruptcy. So for bankruptcy practitioners who have been shy about litigating student loan debt, now is the time that, you know, since this new guidance was released, now is the time to take something like this on and like I mentioned earlier. Any debtor with student loan debt. You should evaluate their case under these these new guidelines to determine whether or not you should pursue a discharge of their student loans. So the new guidance was announced on November 17th of 2022, and they announced the publication of the guidance and the forms regarding student discharge of student loan debt in bankruptcy. And according to the press release, the new process will leverage Department of Education data and a new borrower completed attestation form to assist the government in assessing a borrowers discharge request. So the the significance of the new guidance is. You know, there are many reasons why it's significant. So the current standard for discharge of student loans is random, arbitrary and unfair. And often the litigation is too costly for the debtor to afford. So one of the, you know, drawbacks of doing this work is that, you know, the client who is clearly eligible for a discharge, they can't afford legal fees. You know, the legal fees that you should be charging to endeavor on this work. But since the new guidelines have been released to make the process a lot easier, of course, eliminating the need for discovery and things. Now, the fees don't have to be as high as they would have been. Prior to the guidance. So it gives people more access to pursuing this. The guidance seeks to rectify the problem by setting clear, transparent and consistent expectations for discharge and reduces the burdens on debtors by simplifying the process and increasing the number of cases in which the department would agree to support a discharge. So keep in mind that this is a policy change and it's not an amendment to a statute or rule. So the adversary proceeding is still required. So all the steps that I mentioned earlier. About drafting the complaint. You know, serving the parties, all of that is still the same, Right. The guidance is by and for the Department of Justice, and it was developed by the DOJ in conjunction with the Department of Education. It is the DOJ and EDS guidelines on interpreting undue hardship found in five 2388 for the purposes of settlement and stipulating to discharge. Right. So the goal is for, you know, using the data, using the attestation form to settle the case without further litigation. And per the guidance, it is not intended to or does not create any rights substantive or procedural, enforceable at law by any party in any matter. So the guidance applies to direct loans only. So only the loans that are issued directly by the Department of Education. The debtor has to be in an open bankruptcy as of November 17th, 2022. And cases with an adversary proceeding already filed and pending as of November 17th, 2022, and of course, debtors and future bankruptcies. So keep in mind that you can still reopen an old case, but the new guidance would not necessarily apply. Okay. So. Just keep keep these dates in mind. Okay. So the objectives are to assure access to justice for student loan borrowers in financial distress who seek bankruptcy relief, and to provide clear eligibility requirements for bankruptcy debtors seeking undue hardship discharges. And it provides a more expeditious process that will facilitate the granting of undue hardship discharges where warranted and to resolve undue hardship. Adversary proceedings by stipulation to reduce the cost of litigation for deserving bankruptcy debtors and the federal government. Again, we're going to still be looking at the undue hardship test, Right. So the Brunner test, where we're looking at the three prongs, the minimal standard of living, additional circumstances that the state of affairs is likely to persist, and whether or not the debtor has made good faith efforts, the totality test, looking at the debtor's past, present and reasonably reliable future financial resources and calculation of the debtors and her dependents, reasonable and necessary living expenses and any other relevant factors or circumstances surrounding each particular case. Okay. So basically the. Um, the DOJ guidance is looking at the factors and it really combines really the Brunner and the totality test. So these are the factors. They're looking at the present ability to pay the future, ability to pay and the debtor's good faith efforts. Okay. So when we're looking at the present ability to pay if a debtor's expenses equal or exceed their income, the department will determine that the debtor lacks a present ability to pay. So they use the IRS standard to determine allowable expenses. So the national standards, they use the same dollar amounts as the means test. And for local standards, the debtors are limited to the actual expense, and the standards serve as a cap. Okay. And. And the IRS standards for other necessary expenses. And then also important to note is that the debtor can also, when they're evaluating the present ability to pay the debtor can also include reasonable expenses that are not yet incurred. So, for example, if the debtor is not able to afford to move out of their childhood home and you know, they're not paying rent right now or they're only paying a minimal amount of rent. We look at what the housing market or what what would it cost the debtor to have their own place to live if they're foregoing medical procedures or medications that they would need? We can include that in the budget for people with children if they're not able to afford proper child care and they leave their children with family members who are not necessarily equipped to care for them. So the cost of daycare would be part of the analysis. So that's really important to note because so many people with student loans who are struggling with student loans, you know, don't have certain expenses only because there's no way for them to be able to pursue those things because of their debt or because of the amount of money they're making currently. Okay. So when we're analyzing the present ability to pay, we look at compare the expenses to income and remember that the debtor's gross income includes Social Security and unemployment benefits. And then one of the more important factors as well is that the assistant US attorney has to use the standard monthly payment amount when they evaluate the present ability to pay. So one of the biggest arguments that I've faced up until this new DOJ guidance was released when we're talking about federal student loans, is that the assistant US attorney would argue that, well, why can't your client afford this student loan? Because they're they're eligible for a $0 payment. So now they can't make that argument. They have to use an actual real life payment amount. They can't just, you know, rely on this income driven $0 or low monthly payment because that's not real realistic anyway, because I mean, the the income driven repayment program can be flawed and using that amount to analyze the client's ability to pay was always problematic. So I'm glad they rectified that. Okay. So if the expenses are greater than income, then this part is satisfied. Also, partial discharge may be an option depending on the jurisdiction. Okay. So in analyzing the future ability to pay. Any of the following circumstances will create a presumption that the debtor's ability to pay the student loans is unlikely to materially improve in the future if the debtor is 65 or older. If they have a disability or chronic injury, it doesn't have to be a permanent disability like it is for the total and permanent disability discharge. That's also an administrative remedy that's available to borrowers. But in this instance it does not have to be permanent. If any disability or chronic injury would would be would create a presumption of their future inability to pay. If they've been unemployed for at least five of the last ten years. If the debtor failed to obtain the degree for which the loan was procured and the payments status other than in school for at least ten years. So if any of these factors are present, then they've satisfied the second part of the test. Okay, so the presumptions are rebuttable and you can claim all the presumptions that apply if a presumption does not apply to debtor. They can attest to other facts that are relevant to their future inability to pay so. If it doesn't necessarily fit into any of the categories I just mentioned, they can still just provide other facts, other relevant facts. Okay. So good faith efforts. So evidence of good faith includes making a payment. Applying for a deferment or forbearance. Applying for an income driven repayment plan. Applying for a consolidation. Responding to outreach from a servicer or collector engaging meaningfully with the Department of Ed or their servicer regarding repayment options, forbearance and deferment options, and engaging meaningfully with a third party they believed would assist them in managing their student loan debt. There are a lot of different third parties out there claiming to be able to help people with their student loans. Some of them are legitimate, some of them not so much, but as long as they can prove that, oh, well, I was working with this company and they told me that they would assist me and, you know, getting loan forgiveness or whatever it is. So if there's any evidence of that, then they've satisfied the good faith. Okay. So other criteria. Include efforts to obtain employment, maximize income and minimize expenses. Actual payment history. So evidence that the debtor lacked financial means to pay should be considered if they enrolled in any of the income driven repayment programs. That is a demonstration of good faith, but non enrollment is not controlling. Assistant US Attorney should accept any reasonable explanation or evidence supporting the debtor's non enrollment in income driven repayment plans. Okay, So the attestation form is where you basically would address all of the factors I just discussed. Right. So it requests the information about the debtor's income and expenses and it it'll help the Department of Education evaluate the other two factors. And it's submitted under oath by signing under penalty of perjury. Okay. So the Section one, they're going to ask for personal information. So, you know, the state of residence, the household size and structure. Also the loan information, the balance of the loans, the current repayment information, educational history and employment situation. Okay. So also filling out the current income and expenses. So you're looking at the household gross income and the monthly expenses. So the national standards are used for food, housekeeping supplies, apparel and services, personal care products and services and miscellaneous expenses. If the debtor's expenses are below the IRS standard, no further inquiry is needed and they are allowed the full amount. If they're above the IRS standards, they have to explain why and they may. The US attorney may consider an explanation. So, for example, if the debtor has a food allergy or a special dietary needs and they're spending more than the IRS standard on food. If they can provide an explanation, then the US attorney will accept or evaluate or will at least consider that explanation. Okay. So for the local standards, the local standards are utilized for comparison for housing, utilities and transportation. And this is limited to the actual expenses. So if the debtor. The expenses fall below the IRS standard. They're going to use the actual amount. Okay. Other necessary expenses include alimony, child support, babysitting, daycare, preschool costs and everything will be allowable if it's a reasonable and necessary. Okay. Again, as I discussed earlier, they the Department of Education recognizes that the debtor often forgoes what would be reasonable and necessary because of their tight budget. Right. So it gives the debtor the ability to identify and explain these expenses, like, Oh, I haven't been taking my glaucoma medicine because I can't afford it. So that cost would be added to their budget and they, the US attorney would consider them in the analysis. Okay. Again keep continuing the current income and expenses analysis. Allowable expenses are compared to income to determine the current ability to pay. If the bankruptcy is filed within 18 months of the adversary proceeding, you can use the amounts in Schedule I and J. And again, the student loan repayment estimates are to be based on the standard repayment. This is major, major, major game changer because sometimes the standard payment is like, you know, at least 3 or $400, some some as high as like $2,000. So when you're evaluating it based on a standard payment, most of the time there's not going to be enough money in the client's budget to to cover the standard payment. All right. So we're coming towards the end now. So we're looking at Section three, which is the future inability to pay. So again, those factors include whether the debtor is over the age of 65. If the loans have been in repayment status for at least ten years, if they didn't complete the education for the you know, for which the loan was incurred, if they have a disability or chronic injury and the debtor is unemployed for five of the last ten years and any additional factors. Okay. Again, the Section five of the attestation form looks at five specific asset types the real estate, motor vehicles, retirement accounts, interest in businesses and anticipated tax refund. No dispositive weight is given to non liquid assets. Right. So if the asset is exempt and the debtor. And they can't easily liquidate it, then it's not going to be considered. And if the debtor obviously needs it to maintain a minimum standard of living. So obviously their house and their car, they need that and that they would need that for their minimal standard of living. And then the last section is any additional circumstances. So this is just a catch all for the debtor to make any additional arguments that don't necessarily fit neatly into the above categories. Okay, so that's the end of the presentation. This slide has a lot of great resources that you can use to do further research or find like the most up to date information. Studentaid.gov is such a great resource. It has like all the forms and all the information regarding federal student loans. There's also studentloanborrowerassistance.org protectborrowers.org. The National Consumer Law Center and the Department of Education Ombudsman. So these are great resources if you have further questions or want to do more research. And this is my contact information. Please feel free to reach out. I'm happy to assist or answer any questions you have about this topic. You know, I think it's again, discharging student loans in bankruptcy is one of the most underutilized utilized tools for eliminating student loan debt. And I hope to see that change, especially in light of the new DOJ guidance. So I'm happy to help, you know, anyone who wants to start working on these types of cases. All right. Well, thank you again for being here and enjoy the rest of your day. Take care. Bye bye.

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