I recently fielded a question from a fellow bankruptcy attorney.  The question raised some interesting factors to consider when preparing a set of Chapter 13 bankruptcy papers.  First here is an edited version of the question:

Debtor only has $2,500 in credit card debt.  He has $120,000 in student loan debt and wants to do a chapter 13 to get some breathing room on the monthly student loan payments.  On Form 22C his disposable monthly income (DMI) is very high:  $2,800.  This is purely theoretical and includes his wife’s income, who will not be filing.  He doesn’t actually have that kind of disposable income.  My question is:  if we propose to pay 100% of the non student loan unsecured debt ($2,500), do we have to still pay the equivalent of $2,800/month for 60 months (which would all go to the student loans)?  Are student loans considered as part of the “general unsecureds” for the purpose of this calculation?   Although student loans are not currently dischargeable, we are not allowed to give them priority payments; but can we pay them less than DMI x 60?  Are we able to designate that certain payments go to principal?  Does the nonfiling spouse’s income HAVE to be considered when the plan is really meant to pay down the separate student loan debt of the filer husband?  She’s not liable on this debt as it was incurred before marriage.

For your edification, here is my response:
Continue Reading Chapter 13 Bankruptcy; Student Loans; Community Property Income

In my last post I discussed reaffirmation of debts in bankruptcy.  Near the end of the post I described some loans I had seen my clients take out with interest rates as high as 496%.  At the end of the post I said that that loan shark rate was perfectly legal and promised to tell you why.  This post fulfills that promise by providing you with a bit of history.  I know, there’s no future in history – bad joke.  But this history may prove both enlightening and entertaining.

On April 20, 2005 President Bush signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) (uncharitably referred to by some as “BAPCraPA”).  BAPCPA made some sweeping changes to the Bankruptcy Code.  These changes affect not only debtors contemplating bankruptcy, but also attorneys – and not just bankruptcy practitioners.

I.          The Origins Of American Bankruptcy Law

Article 1, section 8 of the U.S. Constitution grants Congress the power:  “To establish . . . uniform rules on the subject of bankruptcies throughout the United States.”  Why did the Founders feel that it was necessary to include this power in the relatively short list of enumerated congressional powers?
Continue Reading A Bankruptcy History Lesson

Our country has a huge ticking time bomb:  an ocean of student loan debt.  And as tuition and other educational costs continue to shoot up, students must take out ever larger student loans to finance their educations.  It is not uncommon for a doctor to finish medical school with $200,000 to $300,000 in student debt.  And undergraduates are receiving their bachelor’s degrees along with bills for $50,000 in student loans, without any hope of getting jobs that will pay enough to both service the debt and provide a better standard of living than the high school graduate enjoys.

I.          The Bankruptcy Code On Discharging Student Debt

As everyone knows, student debt can’t be discharged:  it says so right there in 11 U.S.C. § 523(a)(8).  Or can student loans be discharged in bankruptcy? 

While it is true that most student debt is not dischargeable, there is a special carve-out in the wording of § 523(a)(8) (with emphasis added):
Continue Reading Discharging Student Loans In Bankruptcy