Means Testing For Chapter 7 Bankruptcy

February 21st, 2017

Means Testing For Chapter 7 Bankruptcy

Means Testing For Chapter 7 Bankruptcy is required before you can qualify for a chapter 7. When a potential client contacts a bankruptcy attorney about potentially filing a Chapter 7 bankruptcy, one of the first questions the attorney will ask is “how much money do you make?”  The reason for this question is that the primary qualification for filing a bankruptcy is based on the “means test,” which establishes a debtor’s ability, or inability, to pay back creditors.

How Do I Qualify For Bankruptcy:

Oklahoma Means Testing For Chapter 7 Bankruptcy is divided into two parts, primary and secondary.  The Primary Means Test is a straightforward look at gross income versus a median income figure for your location.  The median income figure is adjusted for family size.  Means Testing For Chapter 7 Bankruptcy is why it is important for a client to have a good idea how much money they make when they call an attorney.  The means test looks at all sources of gross income for a debtor’s family for a six month period, and uses that number to generate a yearly income figure.  This income can come from almost any source.  For instance, if the debtor works a regular job and is paid with a paycheck, the attorney will ask for six months worth of those pay-stubs in order to enter the relevant data into the test.  If the debtor runs a small business or works as an independent contractor, the attorney will ask for a month by month profit and loss to enter.  If the debtor receives benefits like food stamps or veterans benefits, the attorney will ask for records covering those funds.  The major exception to this rule is Social Security.  Funds from Social Security (and Social Security Disability) are not considered income for the purpose of the means test.

Two Parts to The Means Test:

Once the attorney has assembled all the sources of a debtor’s income, the attorney will use the means test to determine if the debtor’s income is above or below the median income established for the debtor’s family size in that area.  If it is below, the debtor is qualified for a chapter 7 bankruptcy.  If it is above, the attorney moves on to the “secondary” means test.  The secondary means test is a complicated series of numbers and equations that asks a simple question:  based on income and certain deductions, could the debtor pay back a reasonable amount of their debt in a three or five year period?  If the answer is “no”, the debtor qualifies for a chapter 7.  If the answer is “yes”, then the debtor must file a chapter 13 and repay their creditors.

Sit Down and Talk With Your Oklahoma Bankruptcy Lawyer:

Because of this, it is important for the debtor to have at least an accurate estimate of their income when they first meet with their attorney, so that the attorney can properly manage expectations.  Both clients and attorneys become frustrated when an estimate of income turns out to be far lower than reality, and what was expected to be an easy chapter 7 turns into either a chapter 13, or a need for the client to reduce their income for a period of time in order to qualify, significantly delaying the process.  By having a good grasp of the figures, clients can avoid that disappointment, or at the very least, the attorney can warn them before confirming with the data that they may not qualify.  This will help to ensure a good working relationship between client and attorney.

Contact a Tulsa Oklahoma Bankruptcy Lawyer For Help:

Means Testing For Chapter 7 Bankruptcy doesn’t have to be so difficult to work out. Our Tulsa bankruptcy lawyers have helped people from all over the State of Oklahoma resolve their financial problems. We can help you file a chapter 7 or chapter 13 bankruptcy so that you can start to rebuild your financial situation. Call us today and let us help you find a way out. Call or visit our Tulsa bankruptcy attorney blog for more information.

Will my Oklahoma Bankruptcy be Approved

October 17th, 2016

One of the worries we get from clients at the beginning of the bankruptcy process is will my Oklahoma bankruptcy be approved?  Assuming theWill my Oklahoma Bankruptcy be Approved client qualifies in the first place and follows directions, the case will be successfully approved.

Of course, the first step to any successful bankruptcy, particularly a Chapter 7, is qualifying.  The two biggest hurdles to qualifying for a Chapter 7 are previous filings, and income.  As per 11 U.S.C. § 727 (a)(8), debtors are not permitted to receive a discharge in a Chapter 7 if they received a case that was filed in the eight years prior to the current case.  The other hurdle is income.  To qualify for a Chapter 7, a debtor (or joint debtors) must have a family income beneath the median income for a family of the same size in their county of residence.

Qualified to File Now What:

Will my Oklahoma Bankruptcy be Approved has been answered as yes so now what? Once the debtor qualifies to file, the only real obstacle to completing the case and getting it approved  is a failure to follow the directions of the bankruptcy process.  It is important to remember that bankruptcy is a process:  it has well established steps that if followed yield a predicable result (in this case, a discharge).  If they aren’t followed, though, problems will arise.

The two biggest ways in which a client can fail to follow the process are by failing to appear at their 341 hearing, and by failing to complete the debtor education course.  The court requires every debtor to attend a meeting with the trustee before a discharge can be granted.  The trustee asks several questions under oath, establishing that the debtor read and understood their bankruptcy and that they included everything that should be in it.  In addition, the trustee can clear up any questions he or she or a creditor has about the case.  If the debtor fails to attend the first meeting, it will be rescheduled.  If the debtor fails to attend the second reason without a compelling reason, the trustee may move to dismiss the case.

Last Step is Easy so Just Get it Done:

Finally, just as the debtor is required to complete a pre-filing credit counseling course, the debtor is required to complete a post-filing debtor education course.  This course must be completed within 90 days of the date of filing.  Barring a compelling reason for not doing so (such as disability), the court will dismiss the case of any debtor who fails to complete the course without a discharge.  This means the debtor would have to start all over again at the beginning in order to obtain a bankruptcy discharge.

Contact a Tulsa Bankruptcy Lawyers For Help:

If, however, a debtor qualifies and follows the directions, their case will almost certainly be concluded successfully with a discharge.  The best advice that can be given to a client is to listen, answer any questions from his or her attorney accurately and honestly, and to follow directions from his or her attorney. So its easy. The answer to the question will my Oklahoma bankruptcy be approved is yes. Once you qualify all that’s required is for you to get the paperwork to your Tulsa bankruptcy lawyers and we’ll help do the rest. Call 918-739-8984 today a get a free consultation or read our Tulsa bankruptcy lawyer blog for answers to questions..

Tulsa Bankruptcy Attorneys Discuss Bills Included in Bankruptcy

October 6th, 2016

Bills Included in BankruptcyThe bills included in bankruptcy really means all of them. Its not always simple trying to figure the ins and outs of bankruptcy law in Oklahoma. To begin with our Clients are in deep financial trouble attempting to fend off the stress of finances only to face the complications of bankruptcy law. Clients come to us in a general state of financial panic. They wonder what bills are included in bankruptcy together with a thousand other important questions. We tell them to take it easy and let our bankruptcy lawyers take over. The truth is that Oklahoma bankruptcy doesn’t have to be so hard. Our attorneys take the time to go over your case with you and help reduce the anxiety by providing you with answers to bankruptcy questions.

Common Questions About Bills Included in Bankruptcy:

A question we get asked frequently is “what bills are included in bankruptcy?  Can I exclude some of them?”  The short answer is, all of your debts debts must be included.  The longer answer is a bit more complicated.

11 U.S.C. § 521(A)(1)(a) states the first item in a list of the debtor’s duties is to file a list of his or her creditors.  This has been interpreted to mean all of his or her creditors, no exceptions.  A creditor is any person or entity the debtor owes money to, be it a credit card, a bank, a medical bill, an individual, or anyone or thing else.  A debtor can keep a debt by reaffirmation if he wants to keep property that is secured by that debt, but even in that case, the creditor is still listed.

If Its in Your Name Include the Bill in Bankruptcy:

That said, there is an important distinction to be made.  The duty created by §521 only applies to persons who are actually filing.  If the debtor is married, but filing individually, the only creditors included are ones that the debtor is actually named on.  Suppose the debtor has a credit card in his name, a car loan in both his and his wife’s name, and his wife has a medical bill in her name.  If the debtor is filing by himself, he would include the credit card and the car loan, but not the medical bill, as it is not in his name.  Of course, if the debtor and his wife are filing jointly, all three would be included.

Bankruptcy and Medical Bills of a Spouse:

In Oklahoma one spouse is responsible for the medical debt of the other spouse. This means that if at any time during your marriage either partner gets sick and acquires medical debt both spouses are liable for the debt. Sometimes one spouse files a bankruptcy while the other doesn’t. This is fine and it happens all the time. But, in this situation remember that if there’s medical debt from the other spouse and you don’t list it you might latter be liable for it.

In conclusion, Bills Included in Bankruptcy include a list all of the debts on which you are named. This even includes those things that you intend to keep. However, this doesn’t include bills that you are not named on, even if they are your spouses, except for medical bills.

Keeping Multiple Cars in Tulsa bankruptcy

September 22nd, 2016

Keeping Multiple Cars in Tulsa bankruptcy - South Tulsa Bankruptcy law firmKeeping Multiple cars in Tulsa bankruptcy is possible if you think it through. From Route 66 to I-35, Oklahoman’s love their cars, trucks, and motorcycles.  We often have clients coming in to file bankruptcy who own more than one vehicle.  They want to know if they can keep both their daily driver and their motorcycle, work truck, classic car, or garage project.  Its a question of keeping Multiple cars in Tulsa bankruptcy. In most cases, the answer is yes but, it takes some doing.  Suppose we have a client, we will call him Jim, with two vehicles:  a 2012 Ford Focus, in good condition, with 60,000 miles on it that he drives daily, and a 2005 Honda motorcycle he rides on the weekends.

To determine which vehicles Jim gets to keep, we ask three questions:  how many vehicles does he own, how much are they worth, and how much value does he have in each.

Number of Vehicles Counts in Oklahoma Bankruptcy:

Keeping Multiple Cars in Tulsa bankruptcy depends on the number of vehicles involved. This is important, because according to the bankruptcy code 31 OS § 1(A)(13), each debtor gets an exemption in one vehicle up to $7,500 in value.  In a joint bankruptcy, this means that both debtors get a vehicle exemption.  Jim owns two vehicles, so we know he can almost certainly keep at least one of them right off the bat.

Next, we have to determine how much each vehicle is worth.  When we say “worth,” this means the selling price of the vehicle, based on the year, make, model, mileage, and condition.  For Jim, based on what we know, the Ford would be worth about $6000, and the motorcycle would be worth about $1500.  If we refer back to the previous question, we know for sure, now, that Jim will be able to keep at least one of these vehicles due to the exemption.

Finally, we determine how much value the client has in each vehicle.  Value, in this case, means equity.  So we take into account not just how much the vehicle is worth, but how much is owed on the vehicle to a secured creditor, such as an auto loan.  To figure out the value, we take how much the vehicle is worth, and subtract how much is owed.  Suppose Jim owes just $2,000 on his Ford, and his bike is paid off.  In that case, we would subtract the $2,000 owed from the Ford’s worth of $6,000 and come up with a value of $4,000.  But suppose instead that Jim owed $7,500.  In that case, the vehicle would have a value of $0.  In both of those cases, because the bike is paid off, it is worth the full $1500.

Which Vehicle Gets the Oklahoma Bankruptcy Exemption:

Once we know the value of each vehicle, we determine which one gets exempted.  The first priority is to ensure that the client has a daily driver.  If the daily driver is the vehicle with the most value, it gets the exemption.  However, in many cases, clients have little or no value in their daily driver because they owe close to or more than it is worth.

In that case, we exempt the most valuable vehicle, because they trustee will not take a car with little or no value.  So, for our client Jim, if he owes $2,000 on his Ford, we would exempt it, as it has a value of $4,000 and it is his daily driver.  In that case, the trustee might take his bike.  But if he owes $7,500 on his Ford, we would exempt the bike, because his daily driver has no value, and the bike is the most valuable vehicle remaining.

Contact a Tulsa Bankruptcy Lawyer for Information:

In conclusion, Keeping Multiple Cars in Tulsa bankruptcy is possible and all people can keep at least one.  Whether or not they are able to keep other vehicles depends on how much value each vehicle has.  If you are considering bankruptcy and own multiple vehicles, consult with a bankruptcy attorney and read our Tulsa bankruptcy information blog to determine what the value of your vehicles is, and what the best course of action for protecting them is.

 

Secured and Unsecured Debts in Oklahoma Bankruptcy

September 15th, 2016

Secured and Unsecured Debts in Oklahoma Bankruptcy

The difference between secured and unsecured debts in Oklahoma bankruptcy is important. One of the most frustrating things about bankruptcy for clients is the use of terminology that they’re unfamiliar with.  One of the most frequent questions we get is whats the difference between Secured and Unsecured Debts in Oklahoma Bankruptcy. As part of that question people also ask why does it matter anyway?

Secured Debt Oklahoma Bankruptcy:

Secured debt is the easiest to understand.  To put it simply, secured debt is money that was borrowed to make a specific purchase. Its made with the understanding that the lender will have a claim on the item purchased. For instance, if you go to your bank and borrow $20,000 to buy a new car, the bank gets a “security interest” in the car.  If you stop paying the bank, they can take the car in order to recoup their losses.  The same goes for things like mortgages and home equity loans.  You are giving security in the item in exchange for the money.  This also includes what are called “purchase money security interests.”

These are basically the same as the auto or mortgage loans, but on a smaller scale. An example is, if you take out a $2,000 line of credit at a furniture store, or take out a line of credit at a place like Conn’s to buy a TV.  These are important because often, the property involved in a secured debt is exactly the property that clients want to keep.  Fortunately, they can keep the property by keeping the secured loan, through a reaffirmation agreement.  Secured debts can be discharged in bankruptcy, but the creditor gets the property.

Unsecured Debt in Oklahoma Bankruptcy:

Unsecured debts are basically everything else.  Medical bills, credit cards, payday loans, money borrowed from a friend, judgments, repossessions, and many others are all unsecured.  Essentially, if there isn’t some kind of personal or real property attached to the debt, it is unsecured.  With a few exceptions, specifically, child support, back taxes, and student loans, unsecured debts can be discharged in bankruptcy.

Finally, we are occasionally asked about “priority” debts.  Priority debts are a special type of unsecured debt that is supposed to be paid back before any other unsecured debt.  They have priority over the other unsecured creditors.  Priority debts are usually debts owed to the government, like back taxes or past due child support.  In most bankruptcies, this is a meaningless distinction, because none of the unsecured creditors will be paid back.  In cases where creditors will be paid like a Chapter 13, or a Chapter 7 Tulsa  bankruptcy where assets will be distributed, the priority creditors get paid in full before any other unsecured creditors.

Tulsa Bankruptcy Forgives Secured and Unsecured Debt:

In conclusion, the difference between secured and unsecured debts boils down to whether or not property is attached to the debt.  Priority debts are a special form of unsecured debts but are of no concern to the large majority of bankruptcy cases. Secured and Unsecured Debts in Oklahoma Bankruptcy are both forgiven. If you are concerned about which of your debts are secured or unsecured, contact our South Tulsa Bankruptcy Lawyers Law Office today.

Reopening Your Oklahoma Bankruptcy Case

September 9th, 2016

Reopening Your Oklahoma Bankruptcy Case requires what the Court calls good cause. One of the concerns we hear from clients is “what if something happens after the case is over?  Can my case be reopened?”  As a general rule, no, once discharged and closed, a bankruptcy is final.  For instance, a court will not reopen a case to add a creditor to the case after the fact. It also wont open to add a reaffirmation agreement that was not filedReopening your Oklahoma Bankruptcy on time.  However, under special circumstances, the court will decide to reopen a case. This involves very narrow circumstances requiring special kinds of relief.

Requires a Motion to Reopen:

To reopen an Oklahoma bankruptcy, the debtor’s attorney, must file a motion based on the rules of bankruptcy procedure. Those rules are found in Fed. R. Bankr. P. 5010. This rule states the debtor or other interested party may reopen the case only if its for a purpose contained in 11 U.S.C. § 350(b).  This rule states that a case may be reopened for essentially two reasons.  First, to administer assets, or second, to provide relief to the debtor.  As debtors have no say on the administration of assets, they will only be concerned with relief.

Some Reasons the Court Will Reopen Your Case:

The three most frequent forms of relief for which the court will allow Reopening your Oklahoma Bankruptcy case are redaction, violation of the discharge, or to avoid a lien.  The court will reopen a case for redaction if there is information in the case that should have been redacted. An example of this is a social security number.

The court will reopen a case if the debtor believes that a creditor has violated the bankruptcy discharge. This might be due to a creditor attempting to collect a debt that was discharged in the now closed bankruptcy.  Finally, the court will reopen a case to allow a debtor to file a motion to avoid a lien.  Often, debtors don’t even know that a creditor placed a judgment lien against their property (such as their home), until they try to sell it.  Because getting rid of the lien requires a process other than just the original bankruptcy, the court will allow debtors to reopen months or even years later.

Tulsa Lawyers Helping Reopen Your Oklahoma Bankruptcy:

In conclusion, a reopening your Oklahoma bankruptcy cannot be reopened for actions that should have been taken care of in the original case.  A case can be reopened, however, for special kinds of relief, including redaction, violation of the discharge, or to avoid a lien.  If you filed a bankruptcy in the past and are receiving harassment or collection attempts from a creditor in that bankruptcy, or you find your home has a lien against it from a creditor in your bankruptcy, contact a bankruptcy attorney who can get your case reopened and get you the relief you need.

Insurance Settlement Money in Bankruptcy

July 28th, 2016
Insurance Settlement Money in Bankruptcy is yours to keep. Insurance is often a tricky subject for people considering bankruptcy?  They want to know what will happen if they are in an accident, or receive life insurance money.  The answer is first dependent on when the accident occurs, andInsurance Settlement Money in Bankruptcy then where the debtor lives.

Insurance From a Personal Injury:

The first question to ask is “when did the injury or death occur?”  If it’s insurance due to a personal injury accident and the injury occurred after filing the bankruptcy”, then you’re entitled to keep the proceeds free and clear.  If the personal injury occurred before the bankruptcy certain rules apply. First you must show the potential money in your bankruptcy schedules. Next you have to claim the Oklahoma exemption for personal injury. Lastly the funds are 100% yours up to $50000.00.

Insurance From a Will or Trust:

If its from a life insurance claim  and the death occurred six months or more after filing,” then you’re entitled to keep the entirety of the proceeds. If the death occurred within six months of filing or before filing, or if the accident occurred before filing, then the funds are considered part of the bankruptcy estate.  At that point, where the debtor lives determines what happens.  Where the debtor lives determines what set of exemptions apply to the bankruptcy estate.  If its filed in Oklahoma than we use Oklahoma exemptions. In Oklahoma you may lose the money to the bankruptcy trustee. If so the Trustee will keep the money and pay it towards your debt.

Oklahoma Bankruptcy Exemptions:

Debtors living in Oklahoma are very fortunate.  Oklahoma opted to write its own bankruptcy exemptions, and they contain a generous provision for insurance proceeds.  If an accident or death occurred during a period where the proceeds from insurance would become property of the estate, Oklahoma debtors may exempt up to $50,000 of the insurance proceeds from the bankruptcy estate.

It is critical, however, that this money be handled properly.  In order to be exempted, the funds must be traceable back to the insurance claim.  That means they cannot be “commingled” with other types of assets or money.  The best way to separate out the insurance money is to put it in its own separate bank account that contains nothing but those funds.  By making a separate account, the debtor can ensure that the $50,000 they are entitled to keep goes untouched by the bankruptcy court.

Contact a Tulsa Lawyer About Insurance Settlement Money in Bankruptcy:

If you’re considering a fresh start and wondering about insurance settlement money in bankruptcy we can help. Just like many other assets insurance money in a bankruptcy is exempt. This means its yours to keep so long as you qualify. Call today for a free consultation with a bankruptcy attorney.

Filing Bankruptcy in Oklahoma

June 28th, 2016

Do’s and Dont’s Before Filing Bankruptcy in Oklahoma:

Filing bankruptcy is an emotional event for many people. The truth of the matter is that while the pressure associated with filing is understandable following some common do’s and dont’s before filing bankruptcy in Oklahoma.

Dont’s Before Filing Bankruptcy in Oklahoma:

  1. If you have a retirement plan don’t withdraw large sums of money from it just before filing. The two main reasons are that the money you withdraw, once withdrawn is no longer exempt. Leave the money alone. Regardless of how much money is in your retirement, it’s an exempt asset and you won’t lose it your Filing Bankruptcy In Oklahoma | Tulsa Bankruptcy Lawyersbankruptcy. The next reason is that withdraws from retirement plans will increase your income. Because Chapter 7 is means-tested to determine if you qualify for money that increases your income, it may impact your ability to qualify.
  2. Absolutely do not transfer any car or boat titles out of your name. Oklahoma allows for certain bankruptcy exemptions and your car is one. So don’t transfer any titles.
  3. Don’t borrow money if you know that you are going to file bankruptcy in the near future.  Doing so puts your bankruptcy in danger.

Things To Do Before Filing Bankruptcy in Oklahoma:

  1. You should gather six months of your payroll just before we file your case. This shows that your income is below the allowable level for you to qualify for a Chapter 7. If a Chapter 7 is what you are filing.
  2. You should gather up six months of both checking and savings account history. This is done to show the bankruptcy court that you haven’t been moving large sums of cash out of your accounts to in violation of bankruptcy law.
  3. You should gather up two years of tax returns. This is required so that we can provide the court with income history. It also shows which bankruptcy–Chapter 7 or Chapter 13–that you qualify for.

Contact a Bankruptcy Attorney in Tulsa Oklahoma:

If you are having trouble paying your bills bankruptcy may be the perfect solution for you.  Filing bankruptcy in Oklahoma doesn’t have to be so difficult and with a little help and guidance you will get through it. Call today and get a free consultation with one of our Oklahoma bankruptcy attorneys.

Oklahoma Bankruptcy Exemptions

October 6th, 2015

Oklahoma Bankruptcy Exemptions help you safeguard your property in Bankruptcy. Protecting certain assets i.e., keeping them from creditors is a feature of filing a Chapter 7 bankruptcy in Oklahoma. You should know which assets Oklahoma Bankruptcy Exemptions you can keep and under what circumstances you can keep them. The following is a review and a general outline that lists “exempt assets”… assets that you can keep from your creditors.

Bankruptcy Exemptions divide into classes and amounts based on the concept of “equity”. For example, if you have a car that you could sell for $2000 and you have a $1500 loan on the car, your equity is $500. Equity equals the amount left over after selling the asset and repaying the loan. Bankruptcy quotes most exempt assets in terms of equity.

Your House Is Exempt:

Oklahoma Bankruptcy Exemptions For Your Home – The first and usually largest exemption in an Oklahoma bankruptcy is the Homestead exemption. No matter where you live in Oklahoma, if your home is your primary residence, the exemption for the equity you have in your home is unlimited. In addition, you can exempt the value of your acreage up to 160 acres. If however, you live in a city, town or village your acreage exemption is limited to $5000.

Other Exempt Assets:

Bankruptcy Exemptions For Your Motor Vehicle- You can exempt up to $7,500 in equity in a motor vehicle.

Oklahoma Bankruptcy Income Exemptions – You can exempt 75% of wages based on average wages over the past 90 days. For example, if garnishing up to 25% would present a provable economic hardship for you, exemption may be possible.

Exemption For Your Retirement Account – You can exempt the full value of your qualified (pre-tax) retirement plan.

Exemption for Personal Property – Personal property include clothing $4000, furniture and electronics, and one year’s supply of food.

Jointly Owned Assets double the Exemption – For married couples, the exemption amount for jointly owned assets can double.

As long as credit card companies charge double-digit interest rates, no one should feel shame in filing for bankruptcy. Oklahoma law makers know this, so Oklahoma has some of the most advantageous terms in the nation for individuals who simply cannot withstand the burdens of crushing credit card debt. If you are contemplating wiping the slate clean, or are merely concerned that you cannot pay your bills on time every month, please give us a call for a free consultation. Filing for Chapter 7 bankruptcy often makes good economic sense and we can advise and assist you in each step from the initial filing to taking positive measures to restoring or maybe even eventually improving your credit rating. Please call us today.

Free Consultation: Contact us about Oklahoma Bankruptcy Exemptions;

If you are considering bankruptcy we can help. The bankruptcy attorneys at South Tulsa Bankruptcy can take you through the process of understanding exempt assets. Call today for your free consultation.

Student Loans and Oklahoma Bankruptcy

August 21st, 2015

Student loans and Oklahoma bankruptcy are once again in the news. Student loans are a leading source of personal debt in the United States.  For many people student debt is a large portion, and in some cases, the Student Loans and Oklahoma Bankruptcymajority of their debt.  Many potential bankruptcy debtors are unsure whether or not their student loans can be discharged.  Recent statements by the President and by the Department of Education concerning student loans have further confused this situation.  It’s important for potential debtors to have a clear understanding of what the laws are concerning student loans and Oklahoma bankruptcy. By understanding the rules your expectations regarding bankruptcy and student loans will be realistic.

Basic Guidelines For Student Loans:

The basic law surrounding student loans and Oklahoma bankruptcy remains the same since the bankruptcy reforms of 2005.  Generally, 11 USC §523(a)(8) states that any education loan guaranteed by the federal government cannot be discharged unless not doing so would create extreme and undue hardship for the debtor.  After 2005, that law also applies to any student loan made by a private entity.  Thus, any and all student loans, federal or private, are subject to a “undue hardship” test in bankruptcy.

Undue Hardship Explained:

The statute does not define “undue hardship,” and the Supreme Court has yet to issue a ruling on the issue.  Thus, Federal Circuit courts determine the standards measuring undue hardship.  The most commonly used test comes from a New York case from 1987, Brunner v. New York State Higher Education Services Corp., (831 F.2d 395, 2d Cir. 1987).  In Brunner, the Second Circuit determined that an undue hardship consists of three factors:

  1. Inability to maintain a minimal standard of living if forced to repay the loan.
  2. Additional circumstances exist indicating that the state of affairs is likely to persist for a significant portion of the repayment period; and
  3. Debtor has made good faith efforts to repay.

This test is, in and of itself, vague, particularly “additional circumstances” and “good faith efforts.”  Since the Brunner ruling in 1987, the courts have generally determined that “additional circumstances” is effectively equal to disability.  Inability of a debtor to work due to long-term and/or permanent injury or disability meets the “additional circumstances” test.  In such cases, “good faith efforts” often interprete widely to mean any attempt to repay the loans. Thus, the longer and more consistent loan repayments are prior to bankruptcy, the better.

Recent Court Suggestions:

Some courts have suggested that other standards, such as a confluence of catastrophic events outside the debtor’s control (such as an unexpected divorce combined with illness of a child and loss of income) could constitute an “undue hardship”, particularly with past evidence of an intent to repay the loans, but until the Supreme Court rules on the issue, the Brunner test is still the most widely used.

A debtor must file an adversrial proceeding with the bankruptcy court to have student loans considered.  Presumably, student loans are non-dischargeable.  The Department of Education has, in the past, frequently contested such proceedings in an attempt to prevent discharge.  A Presidential Memorandum from President Obama in March of 2015 ordered the Department of Education to clarify the circumstances under which they would continue to challenge such filings.  On July 7, 2015, the Department released a memo stating that they would limit their challenges to cases where they disagreed that an undue hardship existed, and further, not pursue cases when the costs to fight the adversarial proceeding in bankruptcy court would exceed one third of the total amount of the loan due.

Practical Implications Of Undue Hardship Test:

While that sounds promising, it doesn’t actually represent any real change in the status of student loans and Oklahoma bankruptcy.  First, private loans aren’t covered by these guidelines at all, because the Department of Education has no control over them.  Second, while these guidelines are being publicly released due to Presidential Memorandum, they are essentially how things have operated for years.  None of these guidelines change federal law or particularly modify the Brunner test.

Therefore, for a non-disabled debtor, student loans, whether federal or private, are effectively exempt from discharge.  Disabled debtors have more options.  The Department of Education is issuing forgiveness for federal student loans if they determine that an undue hardship exists.  This loan forgiveness is technically outside the bankruptcy, but is often requested in conjunction with a bankruptcy filing.

If the Department of Education determines that an undue hardship does not exist, a disabled debtor could still file an adversarial proceeding to attempt to discharge the debts through the court, though, as suggested above the Department of Education will still contest those proceedings if it deems it to be in the financial interest of the government.  Private loans, even for disabled debtors, are still likely to be challenged in all cases;  more over, few, if any, private lenders provide a procedure or policy forgiving the debt for disabled debtors.

Current State of The Law:

In conclusion, despite Presidential memos and government guidelines, the best rule of thumb is that student loans are not dischargeable.  If you have a disability and believe that you may qualify to have your loans forgiven or discharged, speak to your bankruptcy attorney regarding this matter.

Student loans are a leading source of personal debt in the United States.  For many people who are exploring bankruptcy, student debt is a large portion, and in possibly, the majority of their debt.  Many potential bankruptcy debtors are unsure whether or not their student loans, federal or private, can be discharged.  Recent statements by the President and by the Department of Education concerning bankruptcy and student loans have further confused this situation.  It is important for potential debtors to have a clear understanding of what the laws and rules are concerning student loans before filing, so as to have clear expectations for what their financial situation will be post bankruptcy.

The basic law surrounding student loans in bankruptcy remains the same since the bankruptcy reforms of 2005.  Specifically, 11 USC §523(a)(8) states that any education loan made, insured, or guaranteed by the federal government cannot be discharged, “unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents.”  After 2005, that law also applies to any student loan made by a private entity.  Thus, any and all student loans, federal or private, are subject to a “undue hardship” test when a debtor seeks to discharge them in bankruptcy.

Definition of Undue Hardship:

Student Loans and Oklahoma Bankruptcy are vague regarding undue hardship. The statue does not define “undue hardship,” and the Supreme Court has yet to issue a ruling on the issue.  Thus, Federal Circuit courts determine the standards measuring undue hardship.  The most commonly used test comes from a New York case from 1987, Brunner v. New York State Higher Education Services Corp., (831 F.2d 395, 2d Cir. 1987).  In Brunner, the Second Circuit determined that an undue hardship consists of three factors:

  1. Inability to maintain a minimal standard of living if forced to repay the loan.
  2. Additional circumstances exist indicating that the state of affairs is likely to persist for a significant portion of the repayment period; and
  3. Debtor has made good faith efforts to repay.

This test is, in and of itself, vague, particularly “additional circumstances” and “good faith efforts.”  Since the Brunner ruling in 1987, the courts have generally determined that “additional circumstances” is effectively equal to disability.  Inability of a debtor to work due to long-term and/or permanent injury or disability meets the “additional circumstances” test.  In such cases, “good faith efforts” often interprete widely as any attempt to repay the loans.  Thus, the longer and more consistent loan repayments are prior to bankruptcy, the better.

Some courts have suggested that other standards, such as a confluence of catastrophic events outside the debtor’s control (such as an unexpected divorce combined with illness of a child and loss of income) constitutes an “undue hardship”, particularly with past evidence of an intent to repay the loans,  However, until the Supreme Court rules on the issue, the Brunner test remains the most widely used.

Adversarial Proceedings and Student Loans:

A debtor must file an adversarial proceeding with the bankruptcy court to have student loans considered.  Presumably, student loans are non-dischargeable.  The Department of Education has, in the past, frequently contested such proceedings in an attempt to prevent discharge.  A Presidential Memorandum from President Obama in March of 2015 ordered the Department of Education to clarify the circumstances under which they would continue to challenge such filings.  On July 7, 2015, the Department released a memo stating that they would limit their challenges to cases where they disagreed that an undue hardship existed, and further, not pursue cases when the costs to fight the adversarial proceeding in bankruptcy court would exceed one third of the total amount of the loan due.

While that sounds promising, it doesn’t actually represent any real change in the status of student loans.  First, these guidelines do not cover private loans since the Dept. of Education has not control over them.  Second, while these guidelines are public for the first time due to the Presidential Memorandum, they show essentially how the Department of Education operated for years.  None of these guidelines change federal law or particularly modify the Brunner test.

Therefore, for a non-disabled debtor, student loans, whether federal or private, are effectively exempt from discharge.  Disabled debtors have more options.  The Department of Education, in accordance with the guidelines it released on July 7, are issuing forgiveness for federal student loans if they determine that an undue hardship exists.  This loan forgiveness is technically outside the bankruptcy, but is often requested in conjunction with a bankruptcy filing.

If the Department of Education determines an undue hardship does not exist, a disabled debtor could still file an adversarial proceeding attempting to discharge the debts through the court.  Though, the Department of Education will still contest those proceedings if it deems it is in the government’s financial interest.  Private loans, even for disabled debtors, are usually challenged in all cases; and few, if any, private lenders use a procedure or policy forgiving the debt for disabled debtors.

In conclusion, despite Presidential memos and government guidelines, the best rule of thumb is that student loans are not dischargeable.  If you have a disability you may qualify to have your loans forgiven or discharged, speak to your bankruptcy attorney.

Free Consultation Regarding Student Loans and Oklahoma Bankruptcy:

If you have questions regarding student loans and Oklahoma bankruptcy call us today. At South Tulsa Bankruptcy Law Office we understand how hard a financial crisis is. We can help you get a chapter 7 fresh start or chapter 13 reorganization of your debt. Get a Free Consultation 918-739-8984