Student Loans: What are the various repayment programs and...
Transcript of Student Loans: What are the various repayment programs and...
SStudent Loan Options andChapter 13 BankruptcyChapter 13 Bankruptcy
Edward BoltzThe Law Offices of John T. Orcutt
1738-D Hillandale Road, Durham NC 27705919.286.1696
[email protected]© Edward Boltz 2015
• $1.18 Trillion outstanding in Q1 2015– Auto loans: $968 billion
EEducational Debt Levels in 2015
Auto loans: $968 billion– Credit cards: $685 billion
• 43 million Americans owe educational debt
• 2013 undergraduate: $27,300– 70% of 2013 graduates have student loan debt.
AAverage Debt Loads
• 40% of student loans are borrowed forgraduate or professional school.–2013 law school: $141,000–2013 medical school: $162,000
AAverage Debt at NC Law Schools: 2014 class
Charlotte $140,528Elon $132,444Duke $125,406Wake Forest $107,532UNC-CH $92,475Campbell $90,065NCCU $58,061
• Delinquent = borrower has missed 1 payment• Default = status after 9 months of delinquency
DDefault and Delinquency Rates
• Q1 2015: 11.1% 90+ days delinquent or in default– 11.3% in Q3 2014– 11.5% in Q4 2013
• 8.8% had defaulted by the end of 2010.
• Only 17% of the original debt had been paid
CClass of 2009
Only 17% of the original debt had been paiddown after five years.
• More than 20% of high balance borrowers owemore than when they graduated.
WWhat is a Student Loan?In the bankruptcy context, absent an “undue hardship”, 11U.S.C. § 523(a)(8)(A) makes non-dischargeable “an educationalbenefit overpayment or loan made, insured or guaranteed bya governmental unit, or made under any program funded inwhole or in part by a governmental unit or nonprofitinstitution or an obligation to repay funds received as aninstitution, or … an obligation to repay funds received as aneducational benefit, scholarship or stipend…
This describes the government guaranteed student loans.
WWhat is a Student Loan?Following BAPCPA, under 11 U.S.C. § 523(a)(8)(B) “any othereducational loan that is a qualified education loan, as definedin section 221(d)(1) of the Internal Revenue Code of 1986,incurred by a debtor who is an individual.
This describes the private student loans, but those must meet the requirements of the Internalp , qRevenue Code at 26 U.S.C. § 221(d).
WWhen is a Private Student Loan Non-Dischargeable?(d) Definitions For purposes of this section—
(1) Qualified education loan The term “qualified education loan” means any indebtedness incurred by the taxpayer solely to payqualified higher education expenses—
(A)which are incurred on behalf of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer as of the time theindebtedness was incurred,
(B)which are paid or incurred within a reasonable period of time before or after the indebtedness is incurred, and
(C)which are attributable to education furnished during a period during which the recipient was an eligible student.
Such term includes indebtedness used to refinance indebtedness which qualifies as a qualified education loan. The term “qualifiedd i l ” h ll i l d i d b d d h i l d ( i hi h i f i 267(b)education loan” shall not include any indebtedness owed to a person who is related (within the meaning of section 267(b) or707(b)(1)) to the taxpayer or to any person by reason of a loan under any qualified employer plan (as defined in section 72(p)(4)) orunder any contract referred to in section 72(p)(5).
(2) Qualified higher education expenses The term “qualified higher education expenses” means the cost of attendance (as defined insection 472 of the Higher Education Act of 1965, 20 U.S.C. 1087ll, as in effect on the day before the date of the enactment of theTaxpayer Relief Act of 1997) at an eligible educational institution, reduced by the sum of—
(A)the amount excluded from gross income under section 127, 135, 529, or 530 by reason of such expenses, and
(B)the amount of any scholarship, allowance, or payment described in section 25A(g)(2).
For purposes of the preceding sentence, the term “eligible educational institution” has the same meaning given such term by section25A(f)(2), except that such term shall also include an institution conducting an internship or residency program leading to a degree orcertificate awarded by an institution of higher education, a hospital, or a health care facility which offers postgraduate training.
WWhen is a Private Student Loan Dischargeable?Hours could be spent parsing these section of the Bankruptcy and Internal Revenue Codes, but justfew examples:
While 11 U.S.C.S. § 523(a)(8)(A)(ii) provides that a bankruptcy discharge will discharge claimsreceived as an educational benefit, scholarship, or stipend, to be excepted from discharge underthis subsection, a creditor must demonstrate that the debtor is obliged to repay a debt for
for the educational benefits. 11 U.S.C.S. § 523(a)(8)(A)(ii) is not a catch-all provisiondesigned to include every type of credit transaction that bestows an educational benefit on ad bt I t d thi b ti i l d diti di ti t f th i th th b ti fdebtor. Instead, this subsection includes a condition, distinct from those in the other subsections of§ 523(a)(8), that that funds be received by the debtor. Inst. of Imaginal Studies v. Christoff (In reChristoff), 527 B.R. 624 (9th Cir. BAP February 19, 2015).
Or consider that 26 U.S.C. § 221(d) defines the term “qualified education loan” as “anyindebtedness incurred by the taxpayer solely to pay qualified higher education expenses …whichare incurred on behalf of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer asof the time the indebtedness was incurred….” (Emphasis added.) If the loan was incurred forreasons beyond only higher education or were incurred for a child that was no longer a dependent,such would not be a “qualified education loan”, private or otherwise.
TTypes of Federal Loans• William D. Ford Federal Direct Loan Program (“Direct Loan”)34 C.F.R. §685Only option as of July 2010.• PLUS Loan34 C.F.R. §685Credit Based Loans for Parent or Graduate Student.• Perkins Loan34 C.F.R. §674Administered by the school for exceptional financial need.
TTypes of Federal Loans(Discontinued)
• Federal Family Education Loan Program (“FFEL”)34 C.F.R. §682Discontinued as of July 2010.• Health Education Assistance Loan Program (“HEAL”)42 C.F.R. §60Discontinued in 1998.
OObtaining Information About Federal Loans
Information about federal student can best be obtained from theNational Student Loan Data System, which is the central database forstudent aid. It receives data from schools, agencies that guaranteeloans, the Direct Loan Program, the Federal Pell Grant Program, andother United States Department of Education programs.It is available online at:https://www.nslds.ed.gov
OObtaining Information About Federal Loans
The Department of Education has repeatedly stated that only theborrower is allowed to access this information.
Attorneys for borrowers are not exempted from this restriction makingAttorneys for borrowers are not exempted from this restriction, makingit necessary for the borrower to either print out the information orsave it as a pdf screenshot.
OObtaining Information About Federal Loans
Alternatively, borrowers can download NSLDS data into a readable file:• Log in at StudentAid.gov.• Click or touch “MyStudentData Download.”• Click or touch “Confirm.”• Specify a file location for saving and downloading (i.e., designate towhat location on your computer you want to save the file). If you areusing a mobile device, your data may open in a new window or it maydownload, depending on your device.
• The file will download to the specified location.
SSample Information• File Source:U.S. DEPARTMENT OF EDUCATION, NATIONAL STUDENT LOAN DATA SYSTEM(NSLDS)
• File Request Date:2014-07-01-10.51.27.075• Student First Name:YPSILANTI• Student Middle Initial:A• Student Last Name:CURRUTHERS• Student Street Address 1:123 WINDING WAY• Student Street Address 1:123 WINDING WAY• Student Street Address 2:APT. 1014• Student City:BEDFORD FALLS• Student State Code:NY• Student Country Code:US• Student Zip Code:55501• Student Email Address:[email protected]• Student Home Phone Country Code:001• Student Home Phone Number:7035551212
SSample Information• Student Home Phone Preferred:No• Student Cell Phone Country Code:001• Student Cell Phone Number:7035551313• Student Cell Phone Preferred:Yes• Student Work Phone Country Code:001• Student Work Phone Number:7035551414• Student Work Phone Preferred:NoStudent Work Phone Preferred:No• Student SULA MEP Program School Name:NORTH SOUTH UNIVERSITY• Student SULA MEP Program Enrollment Status:FULL TIME• Student SULA MEP Program CIP Title:Urban Forestry.• Student SULA MEP Program Credential Level:BACHELOR’S DEGREE• Student SULA MEP Program Begin Date:08/15/2013• Student SULA MEP Program Length In Years:4.0• Student SULA Maximum Eligibility Period:6.0
SSample Information• Student SULA Subsidized Usage Period:1.0• Student SULA Remaining Eligibility Period:5.0• Student Enrollment Status:FULL TIME• Student Enrollment Status Effective Date:08/15/2013• Student Total All Loans Outstanding Principal:$30,476• Student Total All Loans Outstanding Interest:$99• Student Pell Lifetime Eligibility Used:4 511%• Student Pell Lifetime Eligibility Used:4.511%• Student Total All Grants:$553• Total DIRECT STAFFORD SUBSIDIZED (SULA ELIGIBLE) OutstandingPrincipal:$12,000
• Total DIRECT STAFFORD SUBSIDIZED (SULA ELIGIBLE) Outstanding Interest:$200• Loan Type:DIRECT STAFFORD SUBSIDIZED (SULA ELIGIBLE)• Loan Award ID:*****6789012345678901• Loan Attending School Name:NORTH SOUTH UNIVERSITY• Loan Attending School OPEID:00301000
SSample Information• Loan Date:08/15/2013• Loan Repayment Begin Date:12/01/2018• Loan Period Begin Date:08/15/2013• Loan Period End Date:05/20/2014• Loan Amount:$8,500• Loan Disbursed Amount:$8,500• Loan Canceled Amount:$0• Loan Canceled Date:• Loan Outstanding Principal Balance:$8,500• Loan Outstanding Principal Balance as of Date:07/01/2014• Loan Outstanding Interest Balance:$100• Loan Outstanding Interest Balance as of Date: 07/01/2014• Loan Interest Rate Type:VARIABLE
SSample Information• Loan Repayment Plan Begin Date: 12/01/2018• Loan Repayment Plan Scheduled Amount:$8,500• Loan Confirmed Subsidy Status:Subsidized• Loan Subsidized Usage In Years:1.0• Loan Status:ID• Loan Status Description:IN SCHOOL OR GRACE PERIOD• Loan Status Effective Date:08/20/2013• Loan Disbursement Date:08/15/2013• Loan Disbursement Amount:$7,000• Loan Contact Type:Current ED Servicer• Loan Contact Name:DEPT OF ED/SERVICER• Loan Contact Street Address 1:633 SPIRIT DRIVE• Loan Contact City:CHESTERFIELD• Loan Contact State Code:MO• Loan Contact Zip Code:63005
OObtaining Information About Private Loans
Information about private student loanscan be obtained from credit reports orthrough a FDCPA verification letterthrough a FDCPA verification letter.
DDifferences Between Federal & Private Student Loans
Statute of LimitationsFederal Private
There is no Statute of Limitations Private Student Loans are subjectfor Federal Student Loans.
jto a Statute of Limitations.This may be determined by thecontract or by state law.
DDifferences Between Federal & Private Student Loans
Debt CollectionFederal Private
The federal government and its debt Private Student lenders can collectgcollectors can collect through:• Intercept Tax Refunds• Administrative Wage Garnishment• Lawsuit and Judgment Collection
through:• Lawsuit and Judgment Collection
DDifferences Between Federal & Private Student Loans
Debt CollectionFederal Private
The federal government has a Private Student lenders can hireglimited list of debt collectionagencies that can be found at:
https://studentaid.ed.gov/sa/about/data-center/business-info/contracts/collection-agency
any collection agency.
DDifferences Between Federal & Private Student Loans
Repayment OptionsFederal Private
The federal government has Private Student lenders have notgpanoply of repayment options,including standard, extended andassorted income drive plans.
mandatory repayment optionsother than the contract or anegotiated settlement.
DDifferences Between Federal & Private Student Loans
ForbearanceFederal Private
Federal loans may be placed in Private Student lenders generallyy pforbearance for a variety ofreasons, including economichardship, unemployment, militaryservice, etc.
g ydo not have explicit forbearanceprograms, but can agree to such.
DDifferences Between Federal & Private Student Loans
Bankruptcy DischargeFederal Private
Both federal and private student loans are subject to discharge ifp j grepayment would constitute an “undue hardship”, generally under theBruner test. (Which is beyond the scope of this talk.)
DDifferences Between Federal & Private Student Loans
Bankruptcy DischargeFederal Private
It is worth noting that while 11 U.S.C. § 523(a)(8) did not define “undueg § ( )( )hardship”, a definition was provided by BAPCPA in 11 U.S.C. § 524(m):It shall be presumed that such agreement is an undue hardship on thedebtor if the debtor’s monthly income less the debtor’s monthlyexpenses as shown on the debtor’s completed and signed statement insupport of such agreement required under subsection (k)(6)(A) is lessthan the scheduled payments on the reaffirmed debt. Thispresumption shall be reviewed by the court.
DDifferences Between Federal & Private Student Loans
Bankruptcy DischargeConsequences
Federal PrivateFederal PrivateStudent loans discharged in bankruptcy are not included taxableincome. See IRS Form 982.
DDifferences Between Federal & Private Student Loans
CancellationDeath
Federal PrivateFederal PrivateThe obligation to repay federalloans ends with the borrower’sdeath or, for Parent Plus loans, thedeath of the student.
Private loans are also dischargedby the death of the borrower, butnot necessarily for the co-borrower.
Federal loans cannot collect fromthe decedent’s estate.
Private student loans can collectfrom the decedent’s estate.
DDifferences Between Federal & Private Student Loans
CancellationDisability
Federal PrivateFederal PrivateA determination by the SocialSecurity or Veteran’sAdministrations that the borrower is“totally and permanently disabled”can result in an administrativedischarge, if the condition persistfor at least 3 years.
Private loans have no requirementof forgiveness due to disability.
OMBNo. 1845---0065Form ApprovedExp. Date 6/30/2016
DISCHARGE APPLICATION: TOTAL AND PERMANENT DISABILITYIMPORTANTINFORMATION
• William D. Ford Federal Direct Loan ProgramTPD APP • Federal Family Education Loan Program
• Federal Perkins Loan Program• TEACHGrant Program
READ THIS FIRST• This is an application for a total and permanent disability discharge of your William D. Ford Federal Direct Loan (Direct Loan) Program, Federal
Family Education Loan (FFEL) Program, and/or Federal Perkins Loan (Perkins Loan) Program loan(s), and/or your Teacher Education Assistance forCollege and Higher Education (TEACH) Grant Program service obligation.
• You only need to submit a single application to the U.S. Department of Education to apply for discharge of all of your Direct Loan, FFEL, and/orP ki L l d TEACH G t i bli ti Th h t thi li ti th d “ ” “ ” “ ” f t thPerkins Loan program loans and your TEACH Grant service obligations. Throughout this application, thewords “we,” “us,” an “our” refer to theU.S.Department of Education.
• To qualify for this discharge, youmustmeet one of the following requirements:1. You are a veteranwhohas been determined by theU.S. Department of VeteransAffairs (VA) to beunemployable due to a service
connected disability, and you provide documentation from the VA of that determination;OR
2. You have received a Social Security Administration (SSA) notice of award for Social Security Disability Insurance (SSDI) or SupplementalSecurity Income (SSI) stating that your next scheduled disability reviewwill be 5 to 7 years or more from the date of your last SSAdisability determination, and you provide a copy of that SSA notice of award.
OR3. You provide a certification from a physician in Section 4 of this Discharge Application that you are unable to engage in any substantial gainful
activity (see definition in Section 5) by reason of a medically determinable physical or mental impairment that:o Can be expected to result in death;o Has lasted for a continuous period of not less than 60months; oro Can be expected to last for a continuous period of not less than 60months.
• If you do not meet requirement #1 or requirement #2, youmay qualify for discharge by obtaining a certification from a physician in Section 4 ofthis application, as described above for requirement #3. If you can provide the documentation to show that youmeet requirement #1 or #2above, you are not required to have a physician complete Section 4.If l i f di h d i #1 id d i f h V h i h h VA h
DDifferences Between Federal & Private Student Loans
CancellationClosed School
Federal PrivateFederal PrivateIf the school the borrower attendedclosed while the borrower enrolledor within 120 days of withdrawal,the loansmay be cancelled.
Private loans have no obligation tobe cancelled if the school closes.
DDifferences Between Federal & Private Student Loans
CancellationFalse Certification
Federal PrivateFederal PrivateFederal loans may be cancelledunder some circumstances for falsecertification by the school of theborrower’s ability to benefit fromtraining or other identity theft.
Private loans are subject toidentity theft protections, but donot have to cancel loans fortraining that could not provide anybenefit.
DDifferences Between Federal & Private Student Loans
CancellationConsequences
Federal PrivateFederal PrivateCancellation of both federal and private student loans will result in a thecancelled amount of the loan being reported as income for tax purposes.
DDifferences Between Federal & Private StudentLoans
ForgivenessPublic Service Loan ForgivenessFederal PrivateFederal Private
An borrower employed by thegovernment or a 501(c)(3) can haveDirect Loans forgiven after making120 payments, including under anIDR.
None.
DDifferences Between Federal & Private Student Loans
ForgivenessTeacher Loan Forgiveness
Federal PrivateFederal PrivateA full-time teacher at a low-incomeschool can have $17,500 of Direct orFFEL loans forgiven.
None.
DDifferences Between Federal & Private Student Loans
ForgivenessConsequences
Federal PrivateFederal PrivateForgiven loans are not reported astaxable income.
Not applicable.
DDefaulted Federal LoansDefault
Definition
No Payments for more than 270 days.
Consequences
• The entire unpaid balance is due and payable.• Loss of eligibility for deferment, forbearance, and repayment plans.• Loss of eligibility for additional federal student aid.• Loan is assigned to a collection agency.• The loan will be reported in default to credit bureaus• Intercept of tax refunds.• Balance will increase because of the late fees, additional interest, court costs, collection
fees, attorney’s fees, and any other costs associated with the collection process.• Administrative wage garnishment.• Commencement of legal action.• Possible Suspension of Professional or Driver’s Licenses.
SSolutions for Defaulted of Federal Loans
SettlementThe Department of Education, its Guaranty Agencies and Debt Collectors may accept a lumpsum settlement but are not required to accept such a settlement.Settlement of student loans will result in the cancelled amount being reported as taxableincome.
SSolutions for Defaulted of Federal Loans
SettlementFFEL and Perkins Loans
Collection costs can be waived.30% of principal and interest can be waived.If a guaranty agency chooses to compromise more than 30%, it cannot waive theDepartment’s right to collect the rest.
SSolutions for Defaulted of Federal LoansSettlement
Direct Loans
• Waiver of Collection Costs: Payment of the current principal and interest (waiver of collectioncosts/fees).
Example: Borrower owes $2500.00 Principal, $ 1000.00 Interest, and $875.00 projected collectionfees. The collector may offer the borrower a settlement as low as $3500.00 (Principal and Interest) tofully satisfy the accountfully satisfy the account.• Principal and Half Interest: Payment of at least the current principal and 50% of interest.
Example: Borrower owes $2000.00 Principal, $1000.00 Interest and $730.20 projected collectioncosts. The collector may offer the borrower a settlement as low as $2,500.00 (principal + 50%interest) to fully satisfy the account.• 90% principal and interest: Payment of at least 90% of the current principal and interest balance.
Example: Borrower owes $2000.00 Principal, $400.00 Interest and $584.16 projected collectioncosts. The collector may offer the borrower a settlement as low as $2160.00 (90% of principal +interest) to fully satisfy the account.
SSolutions for Defaulted of Federal LoansSettlement
The examples were taken directly from the 2009 Department of Education Private CollectionAgency (“PCA”) Manual and in all three, appear to authorize waiver of collection costs.In addition to these standard compromises, the PCA Manual authorizes discretionarycompromises for financial hardship with the prior approval of the Department of Education.
SSolutions for Defaulted of Federal LoansConsolidation
Consolidation is essentially a refinancing of all existing student loans into one Direct Loan.
In something of an oxymoron, a single loan can be consolidated.
The borrower must agree to repay the consolidated loan under an Income DrivenRepayment Plan.The Interest Rate for the new consolidated loan will be a weighted average of the previousThe Interest Rate for the new consolidated loan will be a weighted average of the previousloans.Consolidation may include collection costs of up to 18.5% of the principal and interestoutstanding on the defaulted loan.Default on Student Loans can only be cured once through consolidation, unless other loansare later consolidated.Consolidation generally takes 30-90 days.
SSolutions for Defaulted of Federal LoansRehabilitation
Rehabilitation requires the borrower to make nine (9) payments in ten (10) months.
Payments must be reasonable and affordable, based on review and IDR.
Payments made through Administrative Wage Garnishment do not count.
Nor does the Administrative Wage Garnishment stop until five (5) payments have beenmademade.Consolidation may include collection costs of up to 18.5% of the principal and interestoutstanding on the defaulted loan.Default on Student Loans can only be cured once through consolidation, unless other loansare later consolidated.
SSolutions for Defaulted of Federal LoansChapter 13
11 U.S.C. § 1322(b)(3) provides that “the plan may … provide for the curing or waiving ofany default.” (Emphasis added.)“Any default” should include student loan or even a default under a rehabilitation.
“Curing”, which generally means catching up on missed payments, must mean somethingdifferent from “waiving”, which implies forgiving of missed payments.11 U.S.C. § 1322(b)(5), which routinely is used to allow the cure and maintenance ofmortgage payments, specifically allows the same treatment for “any unsecured claim … onwhich the last payment is due after the date on which the final payment under the plan isdue”, which would include non-dischargeable student loans.Such a cure or waiver could avoid the assessment of collection costs of up to 18.5% of theoutstanding principal and interest.It should be expected that such a plan would face vigorous opposition from the Departmentof Education and heightened judicial scrutiny.
FFederal Loan Repayment Options
• Standard RepaymentTerm of up to 10 years
• Graduated RepaymentTerm of 10 yearsAmount steps up every two yearsAmount steps up every two years.
• Extended RepaymentBalance of over $30kTerm of up to 25 years
• Extended Graduated RepaymentBalance of over $30kTerm of up to 25 yearsAmount steps up every two years.
FFederal Loan Repayment Sample
Original Loan Amount(3.4% Interest Rate)
$25,000 $50,000 $100,000
Standard $246 $492 $984
Graduated $159 $318 $636Graduated $159 $318 $636
Extended N/A $248 $743
Extended Graduated N/A $142 $283
FFederal Loan Repayment OptionsIncome Driven Repayment Plans
• Income Contingent Repayment (ICR)• Income Based Repayment (IBR)• Pay As You Earn (PAYE)
FFederal Loan Repayment OptionsIncome Contingent Repayment Plans
• Based solely on 15% of disposable income and loan balance.• Assets are not relevant.• Direct Loans only.• Parent Plus cannot have ICR, unless consolidated.• Economic Hardship Deferments count towards 25 years.• Balance cancelled after 25 years.• Cancelled amount may be taxable income.
FFederal Loan Repayment OptionsIncome Based Repayment Plans
• Based solely on 15% of disposable income and loan balance.• Family size includes all people supported at least half-time regardless of tax statusor physical custody.
• If married and file joint tax return, both incomes are used in the calculation, ifseparate tax returns, only the borrower’s income is used in the calculation.
• Assets are not relevant.• IBR Repayment must be less than Standard Repayment to qualify.• Direct Loans only.• Parent Plus cannot have IBR, even if consolidated.• Economic Hardship Deferments count towards 25 years.• Balance cancelled after 25 years.• Cancelled amount may be taxable income.
FFederal Loan Repayment OptionsPAYE Plans
• Based solely on 10% of disposable income and loan balance.• Family size includes all people supported at least half-time regardless of tax statusor physical custody.
• If married and file joint tax return, both incomes are used in the calculation, ifseparate tax returns, only the borrower’s income is used in the calculation.
• Assets are not relevant.• IBR Repayment must be less than Standard Repayment to qualify.• Direct Loans originated after October 2011 only.• Economic Hardship Deferments count towards 25 years.• Balance cancelled after 20 years.• Cancelled amount may be taxable income.• Recently revised with the REPAYE Plan.
FFederal Loan Repayment OptionsPublic Service Loan Forgiveness
• Work for a “qualifying employer” specifically a governmental unit or a501(c)(3) non-profit.
• Make 120 “qualifying payments” under IBR/ICR/PAYE or StandardRepayment after July 2007.Repayment after July 2007.
• Balance forgiven, tax-free, after 120 payments.• Teachers can have $17,500 in loans forgiven after teaching math,science or special ed in qualifying schools for 5 consecutive years.Other teachers can have $5,000 forgiven.
FFederal Loan IBR Repayment Sample
Total Household Income
Household Size $25,000 $50,000 $100,000
1 $50 $420 $1,050
2 $0 $350 $970
3 $0 $280 $900
4 $0 $210 $830
FFederal Loan Repayment Calculation
• To calculate the various student loan repayment options, go to:
https://studentloans.gov/myDirectLoan/p // g / y /mobile/repayment/repaymentEstimator.action
PParticipation in IDR and Chapter 13•Previously the Department of Education, its GuarantyAgencies and Student Loan Servicers would place allstudent loans for Chapter 13 Debtors in administrativeforbearance.
• This meant that no collection actions were taken, butThis meant that no collection actions were taken, butinterest continued to accrue.
•Accordingly, $100,000 of student loans at 8% interestwill grow to $148,984.57 at the end of a 60-monthChapter 13 Plan.
• The “fresh start” becomes a “false start.”
PParticipation in IDR and Chapter 13• The Department of Education had refused to allowChapter 13 Debtors to participate in the variousincome driven repayment plans.
•When pressed with the argument that 11 U.S.C. §525(c) prohibited such discrimination, the525(c) prohibited such discrimination, theDepartment of Education consented to allowingChapter 13 Debtors to participate in IDRs if Chapter 13Plans contained the following provisions from theBuchanan case:
BBuchanan Provisions• The Debtor is not seeking nor does this Plan provide for any discharge, in whole or in part, of her student loan obligations.
• The Debtor shall be allowed to seek enrollment in any applicable income-driven repayment (“IDR”) plan with the U. S. Department ofEducation and/or other student loan servicers, guarantors, etc. (Collectively referred to hereafter as “Ed”), without disqualification due toher bankruptcy.
• Ed shall not be required to allow enrollment in any IDR unless the Debtor otherwise qualifies for such plan.
• The Debtor may, if necessary and desired, seek a consolidation of her student loans by separate motion and subject to subsequent courtorder.
• Upon determination by Ed of her qualification for enrollment in an IDR and calculation of any payment required under such by the Debtor,the Debtor shall, within 30 days, notify the Chapter 13 Trustee of the amount of such payment. At such time, the Trustee or the Debtor may,if necessary, file a Motion to Modify the Chapter 13 Plan to allow such direct payment of the student loan(s) and adjust the payment toother general unsecured claims as necessary to avoid any unfair discrimination.
• The Debtor shall re-enroll in the applicable IDR annually or as otherwise required and shall, within 30 days following a determination of herupdated payment, notify the Chapter 13 Trustee of such payment. At such time, the Trustee or the Debtor may, if necessary, file a Motion toModify the Chapter 13 plan to allow such direct payment of the student loan(s) and adjust the payment to other general unsecured claimsas necessary to avoid any unfair discrimination.
• During the pendency of any application by the Debtor to consolidate her student loans, to enroll in an IDR, direct payment of her studentloans under an IDR, or during the pendency of any default in payments of the student loans under an IDR, it shall not be a violation of thestay or other State or Federal Laws for Ed to send the Debtor normal monthly statements regarding payments due and any othercommunications including, without limitation, notices of late payments or delinquency. These communications may expressly includetelephone calls and e-mails.
• In the event of any direct payments that are more than 30 days delinquent, the Debtor shall notify her attorney, who will in turn notify theChapter 13 Trustee, and such parties will take appropriate action to rectify the delinquency.
• The Debtor’s attorney may seek additional compensation by separate applications and court order for services provided in connection withthe enrollment and performance under an IDR.
BBuchanan Provisions• The Debtor is not seeking nor does this Plan provide for anydischarge, in whole or in part, of her student loanobligations.
An over-arching concern by the Department of Education appears to be that, following UnitedStudent Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010), “unscrupulous debtors [will] abuse theCh 13 b fili l i di i h h d h d hi i iChapter 13 process by filing plans proposing to dispense with the undue hardship requirement inthe hopes the bankruptcy court will overlook the proposal and the creditor will not object.” Id. at16.
It is best to address this concern directly, both by specifically disavowing any present attempt atdischarge and by asking that the Plan be specially set for a Confirmation Hearing.
BBuchanan Provisions• The Debtor shall be allowed to seek enrollment in anyapplicable income-driven repayment (“IDR”) plan with theU. S. Department of Education and/or other student loanservicers, guarantors, etc. (Collectively referred to hereafteras “Ed”), without disqualification due to her bankruptcy.
This is a fundamental change in practice by Ed. and its servicers, which previously refused toconsider applications by Chapter 13 debtors for IDRs, instead placing student loans into an“administrative forbearance.”
The basis for this provision is the prohibition in 11 U.S.C. § 525 (c) which provides that a “Agovernmental unit that operates a student grant or loan program ... may not deny a student grant,loan, loan guarantee, or loan insurance to a person that is or has been a debtor under this title ...because the debtor ... is ... a debtor under this title....”
BBuchanan Provisions• Ed shall not be required to allow enrollment in any IDRunless the Debtor otherwise qualifies for such plan.
This is meant to prevent the debtor from asserting the confirmation of the plan on its ownenrolled the Debtor in an IDR or that the Debtor was given any special preference.
BBuchanan Provisions• The Debtor may, if necessary and desired, seek aconsolidation of her student loans by separate motion andsubject to subsequent court order.
Consolidation of several student loans may be necessary for enrollment in a specific IDR or if thedebtor was in default on her student loans. The plan provides that this will be approved by separatemotionmotion.
BBuchanan Provisions• Upon determination by Ed of her qualification for enrollmentin an IDR and calculation of any payment required undersuch by the Debtor, the Debtor shall, within 30 days, notifythe Chapter 13 Trustee of the amount of such payment. Atsuch time, the Trustee or the Debtor may, if necessary, file aMotion to Modify the Chapter 13 Plan to allow such directMotion to Modify the Chapter 13 Plan to allow such directpayment of the student loan(s) and adjust the payment toother general unsecured claims as necessary to avoid anyunfair discrimination.
This provides that once the monthly payment under an IDR is determined, the debtor will notifythe Chapter 13 Trustee, who would then have an opportunity to decide whether that requires ahigher dividend to unsecured creditors and if the IDR should be made directly or by “conduit.”
BBuchanan Provisions• The Debtor shall re-enroll in the applicable IDR annually or asotherwise required and shall, within 30 days following adetermination of her updated payment, notify the Chapter13 Trustee of such payment. At such time, the Trustee or theDebtor may, if necessary, file a Motion to Modify the Chapter13 plan to allow such direct payment of the student loan(s)13 plan to allow such direct payment of the student loan(s)and adjust the payment to other general unsecured claims asnecessary to avoid any unfair discrimination.
This provides a bit of a “carrot” for the Chapter 13 Trustee in consenting to the plan, in that thedebtor will annually notify the Trustee of changes in the monthly IDR, which could result in ahigher dividend to other unsecured creditors.
BBuchanan Provisions• During the pendency of any application by the Debtor toconsolidate her student loans, to enroll in an IDR, direct paymentof her student loans under an IDR, or during the pendency of anydefault in payments of the student loans under an IDR, it shallnot be a violation of the stay or other State or Federal Laws forEd to send the Debtor normal monthly statements regardingpayments due and any other communications including, withoutlimitation, notices of late payments or delinquency. Thesecommunications may expressly include telephone calls and e-mails.
The second greatest concern by Ed. appears to be that this plan is a devious attempt to trickstudent loan servicers into violating the automatic stay. The communications allowed arepatterned on those with mortgage servicers, but stop short of allowing non-bankruptcygarnishment or other involuntary collection.
BBuchanan Provisions• In the event of any direct payments that are more than 30days delinquent, the Debtor shall notify her attorney, whowill in turn notify the Chapter 13 Trustee, and such partieswill take appropriate action to rectify the delinquency.
This is to allow for monitoring of the IDR payments if made directly by the debtor.
It is important to remember that in regards to student loans, “delinquent” may not be the same as“default”, which requires that no payments have been made for more than 270 days. See 34 C.F.R.§ 685.102.
BBuchanan Provisions• The Debtor’s attorney may seek additional compensation byseparate applications and court order for services providedin connection with the enrollment and performance underan IDR.
This clearly the most important provision in this plan, allowing separate and additionali f h icompensation for these services.
OOptions for Chapter 13 Allowance of IDR• Separate Classification• Co-Sign Protection• Above-median debtor pays student loan fromdiscretionary income, i.e. Social Security or belt-tightening, earned in excess of PDI
• Below-median debtor extends plan to five yearsBelow median debtor extends plan to five years• Pro Rated Distribution to Other General UnsecuredClaims
• Chapter 20
§ 1322. Contents of plan* * *
(b) Subject to subsections (a) and (c) of this section, theplan may—
(1) designate a class or classes of unsecured claims
SSeparate Classification in Chapter 13
(1) designate a class or classes of unsecured claims,as provided in section 1122 of this title, but may notdiscriminate unfairly against any class so designated;however, such plan may treat claims for a consumer debtof the debtor if an individual is liable on such consumerdebt with the debtor differently than other unsecuredclaims;
RReasons for Separate Classification
• Reasons for classifying student loan creditorsseparately from other unsecured creditors inchapter 13 plan:
• Stay current on IDR.• Make progress towards 20/25 year cancellation or 10year PSLF.year PSLF.
• Maximize payment toward non-dischargeable debt.• Avoid accrual of post-petition interest: In re Kielisch, 258F.3d 315 (4th Cir. 2001).
JJudicial Standards• In re Leser, 939 F.3d 669 (8th Cir. 1991):
(1) whether the discrimination has a rational basis;(2) whether classification is necessary to debtor’s rehabilitationunder chapter 13;(3) whether the discrimination is proposed in good faith; and( ) p p g(4) whether there is meaningful payment to class discriminatedagainst
• Permitting Public Service Forgiveness eligibilityadvances debtor’s fresh start
• Less discriminatory approach would leave the debtoror creditors worse off
• Concurrent payment of student loans and secured
SSeparate Classification Allowed
p ydebts, followed by payment in full of unsecured debt
• Unsecured creditors receive at least as much as theywould in chapter 7 proceeding
• Nondischargeability, by itself, does not justifydiscrimination
• Public policy favoring student loan repayment ordebtor’s fresh start is not reasonable justification
SSeparate Classification Not Allowed
• Avoiding harm to the debtor is not a reasonable basisfor discrimination
• No proof that discrimination is necessary orreasonable
• Does the co-debtor stay under § 1301 protect parentsor other family members who may have co-signed thedebtor’s student loan?
• Does the “however clause” eliminate or qualify the
CCo-Sign Protection
• Does the however clause eliminate or qualify thefairness requirement?
• Do student loans co-signed by parents for children fallinto the § 1322(b)(1) consumer debt exception,permitting separate classification?
This Presentation and document are available at:www.ncbankruptcyexpert.com• Click on Student Loan Options and Chapter 13 Bankruptcy• Password: IDR13
DDocuments
• Thanks to Prof. Susan Hauser for statistics, John Rao forcase law and Joshua Cohen for details regarding studentloan programs.
STU
DE
NT
LO
AN
SA
ND
BA
NK
RU
PTC
Y:W
HE
NW
OR
LD
SN
EE
DN
OT
CO
LL
IDE
Edw
ardC
.Boltz
Law
OfficesofJohn
T.O
rcutt,P.C.
JohnR
aoN
ationalConsum
erL
awC
enter,Inc.
1.FederalStudentL
oanC
ollections
Thegovernm
enthasextraordinarypow
erstocollectstudentloan
debt. 1Federalstudent
loancollection
powershave
grown
som
uchovertim
ethatthe
governmentrarely
suesborrow
ers,optinginstead
foranarray
ofextra-judicialcollectiontools.
Theseoptionsinclude
taxrefund
offsets,federalbenefitoffsets,andadm
inistrativew
agegarnishm
ents.
While
arelatively
smallportion
ofthegovernm
ent’soverallcollectioneffort,there
aresom
eindicationsthatthe
U.S.D
epartmentofEducation
isincreasingitslitigation
efforts.A
ccordingto
Bloom
berg,inthe
fiscalyearendedSeptem
ber30,2012,thegovernm
entfiled4841
studentloancollection
lawsuits,alm
ostthreetim
esthenum
berfromthe
previousyear.
Privatelaw
yersfiledabout90%
ofthelaw
suits,handlingthe
suitsona
contingentfeebasis. 2
Studentloanlitigation
isevengreaterin
certainjurisdictions,due
atleastinpartto
aprivate
counselprogramin
theseareas. 3
Inaddition
tothese
powerfulcollection
tools,boththe
governmentand
guarantyagencies
relyheavily
onthe
useofprivate
collectionagenciesand
othermore
“traditional”collection
efforts.A
ccordingto
aD
epartmentofTreasury
reportin2009,the
Departm
entofEducationrefersevery
eligibledefaulted
debttoone
ofitsprivatecollection
agencies. 4In
fact,accordingto
industryinsiders,the
Departm
entcontractis“[t]hem
ostsoughtaftercontractwithin
thisindustry”
becauseofthe
ever-increasingvolum
eofdebtthatisextrem
elydifficultto
dischargein
bankruptcy. 5In
2014,thegovernm
entisprojectedto
payabout$1
billionin
comm
issionstoprivate
collectionagenciesin
2014,growing
toover$2
billionby
2016. 6
1Thisdiscussionofstudentloan
collectionisderived
fromN
CLC
’sStudentLoanLaw
,which
shouldbe
reviewed
foram
oredetailed
discussionofthisand
otherstudentloantopics.
2JohnH
echinger,Teacher’sWagesG
arnishedasU
.S.GoesafterLoan
Default,
ww
w.B
loomberg.com
(July2,2012).
3SeeR
onFrench,M
ichiganG
oesHard
afterStudentLoanD
efaulters,Bridge
Magazine,M
ay16,2012.4U
.S.Dep’tofthe
Treasury,U.S.G
overnmentR
eceivablesandD
ebtCollection
Activitiesof
FederalAgencies:
FiscalYear2009
Reportto
theC
ongress15(M
ar.2010),availableat
http://fmsq.treas.gov.
5SeeM
arkR
ussell,StudentLoans:TheA
RM
Industry’sNew
OilW
ell?,ww
w.insideA
RM
.com(O
ct.20,2011).6Presentation
ofDw
ightVigna,U
.S.Educ.Dep’t,2013
Know
ledgeSym
posium(N
ov.2013).
Totaldefaultedstudentloan
receivables(principalandinterest)serviced
bythe
Departm
entofEducation’sDefaultR
esolutionG
roup(D
RG
)increasedfrom
$17.4billion
attheend
offiscalyear20057to
$170.8billion
attheend
offiscalyear2013. 8C
ollectionsincreasedfrom
$2.082billion
infiscalyear2005
9to$12.010
billionin
fiscalyear2013. 10
According
toestim
atesin2015,the
governmentisexpected
tocollectroughly
$108.58on
every$100
ofdefaultedsubsidized
Staffordloans
and$105.40
onevery
$100of
unsubsidizedStafford
loansin2013. 11
Theseestim
ates,however,do
nottakeinto
accountcollection
costsorinflation.Even
afterfactoringin
collectioncostsand
inflation,therecovery
rateon
defaultstudentloansisstillveryhigh.
According
tothe
president’sfiscalyear2015budgetrequest,the
federalgovernmentexpectsto
eventuallyrecoverabout81.8%
oftheprincipaland
interestdueatthe
time
ofdefaultonsubsidized
Staffordloansm
adein
fiscalyear2013
thatgointo
defaultatanypointduring
repayment. 12
Itisestimated
thatoutstandingstudentloan
debtisapproaching$
1.2trillion
–itnow
surpassescreditcardsasthesecond-largestform
ofconsumerdebtbehind
home
mortgages. 13
2.R
evisitingthe
BrunnerStandard
TheBrunnerstandard
usedby
mostcourtsin
applyingthe
unduehardship
provisionin
section523(a)(8)w
asdevelopedovertw
enty-fiveyearsago. 14
Thenature
ofindividualstudent
7U.S.D
ep’toftheTreasury,U
.S.Governm
entReceivablesand
DebtC
ollectionA
ctivitiesofFederalA
gencies:FiscalY
ear2009R
eporttothe
Congress15
(Mar.2010),available
athttp://fm
sq.treas.gov.8U
.S.Dep’tofthe
Treasury,U.S.G
overnmentR
eceivablesandD
ebtCollection
Activitiesof
FederalAgencies,FiscalY
ear2013,Reportto
theC
ongress(July2014).
9U.S.D
ep’toftheTreasury,U
.S.Governm
entReceivablesand
DebtC
ollectionA
ctivitiesofFederalA
gencies:FiscalY
ear2009R
eporttothe
Congress15
(Mar.2010),available
athttp://fm
sq.treas.gov.10U
.S.Dep’tofthe
Treasury,U.S.G
overnmentR
eceivablesandD
ebtCollection
Activitiesof
FederalAgencies,FiscalY
ear2013,Reportto
theC
ongress(July2014).
11New
Am
.Found.,Fed.Educ.BudgetProject,FederalStudentLoan
DefaultR
ates(Sept.252014);see
alsoK
ellyField,G
overnmentVastly
UndercountsD
efaults,Chron.ofH
igherEduc.,July
11,2010.Fora
discussionofw
hyitisim
portanttoconsidercollection
costsandthe
depreciationof
money
overtime
inevaluating
the“true”
collectionrecovery
rate,seeJason
Delisle,M
isleadingN
umbers:FedsD
on’tProfitonStudentLoan
Defaults,H
igherEdW
atchB
log(Jan.18,2011);
Ben
Miller,Im
portantDefaultRate
Truths,TheQ
uickand
theEd
Blog
(July12,2010).
12Seegenerally
New
Am
.Found.,Fed.Educ.BudgetProject,FederalStudentLoan
Default
Rates(Sept.25
2014).13R
ohitChopra,StudentD
ebtSwells,FederalLoans
Now
Topa
Trillion,CO
NSU
MER
FIN
AN
CIA
LP
RO
TECTIO
NB
UR
EAU
(July17,
2013),w
ww
.consumerfinance.gov/new
sroom/student-debt-
swells-federal-loans-now
-top-a-trillion/.14B
runnerv.N.Y
.StateH
igherEduc.Servs.Corp.(In
reB
runner),46B
.R.752
(S.D.N
.Y.
1985),aff’d,831F.2d
395(2d
Cir.1987).
loandebt,the
structureofthe
loanprogram
s,andthe
Bankruptcy
Code
itselfhaveallchanged
significantlysince
1987.These
changeshavegiven
some
courtscauseto
questionthe
continuedutility
oftheBrunnerstandard. 15
Thefollow
ingfactorsshould
beconsidered
inarguing
forchangein
theundue
hardshipstandard:
Atthe
time
Brunnerwasdecided,debtorscould
dischargea
studentloanw
ithoutprovingundue
hardshipby
simply
byw
aitingfive
yearsaftertheloan
came
due; 16
Atthe
time
Brunnerwasdecided,debtorscould
dischargea
studentloanin
achapter13
casew
ithoutprovingundue
hardshipand
withoutw
aitingfive
yearsaftertheloan
came
due; 17
Thefactsin
Brunnercasew
ereextrem
e–
thedebtorsoughtto
dischargestudentloansjusta
fewm
onthsaftershereceived
am
aster’sdegree(m
ightexplain
why
theBrunnercourtadded
agood
faithprong
tothe
testdespitelack
ofanytextualbasisforthisin
§523(a)(8));
When
theBrunnertestw
asadopted,thetim
eperiod
forreviewing
factorssuch
asthelikelihood
thatthedebtor’shardship
willpersistorthe
debtor’sgood
faith(the
secondand
thirdprongsofthe
test)wassim
plythe
five-yearperiod
aftertheloan
came
due;C
ongresssubsequentlyelim
inatedallw
aitingperiodsfordischarge
without
provingundue
hardshipand
expandedthe
dischargeexception
in2005
toinclude
privatestudentloans; 18
Thistestrequiresdebtorstoshow
:(1)thestudentloanspreventthe
debtorandthe
debtor’sdependentsfromm
aintaininga
“minim
al”standard
ofliving;(2)additional
circumstancesexistindicating
thatthehardship
islikelyto
continuefora
“significantportionof
therepaym
entperiod;”and
(3)thedebtorhasm
adea
good-faitheffortto
repaythe
loans(andto
maxim
izeincom
eand
limitexpenses).
15Seee.g.,In
reR
oth,490B
.R.908,920/-/23
(B.A
.P.9thC
ir.2013)(Pappas,B.J.,concurring);
Kriegerv.Educ.M
gmt.C
orp.,713F.3d
882,884(7
thCir.2013)(noting
itisimportantnotto
allow“judicialglosses”
ofthestatutory
language,suchasfound
inBrunner,to
supersedethe
statuteitself);
Inre
Myhre,503
B.R
.698,702-703(B
ankr.W.D
.Wis.2013)(noting
thatwhen
itw
asdecidedBrunner“only
appliedto
asm
allsubsectionofstudentloans”
andthe
Code
andthe
natureofstudentloan
borrowing
havechanged
significantlysince
then);Inre
Wolfe,501
B.R
.426,434-35
(Bankr.M
.D.Fla.2013)(“There
ismeritto
theargum
entthattherigorsofthe
Brunnertestareno
longerappropriateto
curbborrow
erabusefrom
aprem
aturedischarge
amidst
onlytem
poraryfinancialdistress.”).
16In1990,C
ongressextendedthe
five-yeardischargeexception
periodto
sevenyears.
17Until1990,section
523(a)(8)onlyapplied
tochapter7
cases,sochapter13
debtorswere
ableto
dischargetheirstudentloansaftercom
pletinga
chapter13plans
Congressam
endedthe
Code
in1990
tom
akesection
523(a)(8)applicablein
chapter13cases.
18In1998,C
ongresseliminated
thethen
existingseven-yearw
aitingperiod.H
igherEducationA
mendm
entsof1998,Pub.L.No.105-244,112
Stat.1581(1998).
Subsection523(a)(8)(B
)dealing
with
privatestudentloansw
asaddedin
2005by
BA
PCPA
.
Congressalso
addedin
2005a
definitionof“undue
hardship”in
anunrelated
Code
section, 19forpurposesofreviewing
reaffirmation
agreements,thatisfar
more
lenientthanthe
Brunnertest; 20
Many
debtors20to
30yearsago
were
ableto
repaym
odestamountsof
studentloanin
areasonable
time;debtorsnow
carryexorbitantdebtforlife;
Extreme
collectiontoolsnow
exist(administrative
wage
garnishment;tax
refundand
benefitsoffset;nostatute
oflimitationsforgovernm
entloans;excessive
collectionfees);
TheBrunnertestfailsto
accountfordebtcancellationtax
consequencesofadm
inistrativedischarges.
3.A
dministrative
Repaym
entPlans:ShouldT
heyB
ea
SubstituteFor
Bankruptcy
Discharge?
Studentloancreditorsw
illalmostcertainly
arguethatthe
debtorcannotproveundue
hardshipbecause
thedebtoriseligible
for(ordidnotapply
for)anadm
inistrativerepaym
entplan,such
asanincom
e-contingentrepaymentplan
(ICR
P),income-based
repaymentplan
(IBR
),orPay
asYou
Earnplan
(“PAY
E”).C
ourtsgenerallyhave
heldthatthe
availabilityof
administrative
plansisafactorto
beconsidered
inthe
unduehardship
evaluation,particularlyunderthe
“goodfaith”
test. 21A
tthesam
etim
e,allcourtsagreethatparticipation
inan
income-
basedplan
isnotrequiredto
satisfythe
“goodfaith”
standard. 22Thefollow
ingfactorsshould
beconsidered
inw
eighingthe
relevanceofsuch
plans:
IBR
andotheradm
inistrativerepaym
entplansarenotavailable
forprivatestudentloans;D
ebtorsneedto
recertifyand
make
requiredpaym
entsforIBR
andotherplans
everyyearfor20-25
yearstoavoid
redefault(nostatisticscurrently
availableon
planre-defaults);
Foreseeableinability
torepay
evenunderBrunnersecond
prongshould
be
1911
U.S.C
.§521(m),
which
presumesa
reaffirmation
isanis“an
unduehardship
onthe
debtorifthe
debtor'smonthly
income
lessthedebtor'sm
onthlyexpenses…
islessthanthe
scheduledpaym
entsonthe
reaffirmed
debt.”20See
e.g.,H
ansenv.Sallie
Mae
Inc.,2014U
.S.Dist.LEX
IS113998(W
.D.W
ash.Aug.14,
2014)(evenif§
521(m)served
asnewdefinition
for“unduehardship”,the
debtorhadexcess
income.)
21Inre
Nys,446
F.3d938,947
(9thC
ir.2005)(debtor’sconsiderationofIC
RP
optionisan
importantindicatorofgood
faith);Inre
Frushour,433F.3d
393,402(4th
Cir.2005)(im
portantcom
ponentofgoodfaith
inquiry);Inre
Alderete,412
F.3d1200,1206
(10thC
ir.2005)(carries“significantw
eight”in
evaluatinggood
faith);Inre
Tirch,409F.3d
677,682(6th
Cir.2005)
(decisionnotto
takeadvantage
ofICR
Pprobative
ofdebtor’sintenttorepay).
22Inre
Mosley,494
F.3d1320
(11thC
ir.2007)(rejectinga
perserule
thatdebtorcannotshowgood
faithifdebtordid
notenrollinIC
RP);In
reB
arrett,487F.3d
353,364(6th
Cir.2007);In
reN
ys,446F.3d
938,947(9th
Cir.2006);In
reA
lderete,412F.3d
1200,1206(10th
Cir.2005);
Inre
Frushour,433F.3d
393,402(4th
Cir.2005).
loanterm
(10years),not20-25
years; 23
Planscanlead
tonegative
amortization; 24
Adm
inistrativerepaym
entplansshouldnotbe
soledeterm
inantofgoodfaith
underBrunnerthirdprong; 25
Discharge
underplanscanlead
totax
consequences;26
Debtorsare
notalwayseligible
foradministrative
repaymentplans(debtor
mustgetoutofdefaultby
consolidationorrehabilitation).
4.C
o-Borrow
ersasCreditors
Dischargeability
disputesoccasionallyarise
between
differentindividualswho
were
responsibleforpaying
thesam
estudentloan.
Forexample,one
co-borrowerw
hopaid
offastudentloan
may
assertaclaim
forreimbursem
entfromthe
non-payingco-borrow
er.Ifthe
non-paying
co-borrowerfilesforbankruptcy
relief,doestheco-borrow
erwho
paidoffthe
loanhave
aclaim
thatfitswithin
thedischarge
exceptionof§
523(a)(8)?
Subsection(A
)(i)of§523(a)(8)w
ouldnotapply
becausesuch
aclaim
isnotabenefit
overpaymentorloan
made
inconnection
with
anon-profitorgovernm
ententity. 27N
oristhe
23Kriegerv.Educ.C
reditManagem
entCorp.713
F.3d882,884
(7thC
ir.2013)(respondingto
longertermrepaym
entplanoption,courtnotesthatifgood
faithentailed
comm
itmentto
futureeffortsto
repay,“noeducationalloan
evercouldbe
discharged,becauseitisalw
ayspossibleto
payin
thefuture
shouldprospectsim
prove”).24
Seee.g.,K
eilischv.Educ.C
reditMgm
t.Corp
(Inre
Kielisch),258
F.3d315
(4thC
ir.2001)(§
502doesnotfreeze
thestudentloan
debtnorbarthecreditorfrom
applyingthe
planpaym
entstow
ardspost-petitioninterest.)
25See
e.g.,Bene
v.EducationalManagem
entCorp.(In
reB
ene),474B
.R.56
(Bankr.W
.D.
N.Y
.2012)(debtorwasnotrequired
toindenture
herselffor25yearsunderthe
William
D.Ford
repaymentprogram
.)26In
reC
oco,335Fed.A
ppx.224,2009W
L1426757,at*4
(3dC
ir.May
22,2009)(unpublished
decision)(reversingfinding
ofnondischargeabilityand
ruling,interalia,thatlower
courtgavetoo
much
weightto
debtor’srefusaltoenrollin
ICR
P,noting“herparticipation
inthe
ICR
Pcould
ultimately
resultinhersim
plytrading
astudentloan
debtforanIR
Sdebt”);In
reB
rooks,406B
.R.382,394-95
(Bankr.D
.Minn.2009)(potentialtax
liabilityafterextended
repaymentperiod
isasignificantdraw
backto
ICR
Poption);In
reD
urrani,311B
.R.496,508
(Bankr.N
.D.Ill.2005),aff’d,320
B.R
.357(N
.D.Ill.2005)(courtm
usttakeinto
accountconsiderable
taxburden
debtorwillface
atendoftw
enty-five-yearrepaymentperiod);In
reB
runell,356B
.R.567
(Bankr.D
.Mass.2006);In
reA
llen,324B
.R.278,282
(Bankr.W
.D.Pa.
2005).Butsee
EducationalCreditM
gmt.C
orp.v.Jesperson,571F.3d
775,782(8th
Cir.2009)
(taxliability
frompossible
futuredebtforgivenessisspeculative);EducationalC
reditMgm
t.C
orp.v.Rhodes,464
B.R
.918(W
.D.W
ash.2012)(minim
izingdebtor’sconcernsovertax
consequences,notingthatcancellation
ofdebtatendoflong-term
repaymentplan
onlyresultsin
taxliability
ifborrower’sassetsexceed
liabilitiesattime
ofcancellation).27In
reC
orbin,506B
.R.287,295
(Bankr.W
.D.W
ash.2014)(co-borrowerw
hopaid
ofstudentloan
notcoveredby
§523(a)(8(A
)(i));Inre
Rust,510
B.R
.562,571(B
ankr.E.D.K
y.2014)(notreaching
coverageunder§
523(a)(8)(i)butsuggestingco-borrow
erwith
subrogationrightscould
claima
qualifyingeducationalloan
undertheIR
Sdefinition
incorporatedinto
§523(a)(8)(B
).Thisleavessubsection
(A)(ii)of§
523(a)(8),which
preservesfromdischarge
“anobligation
torepay
fundsreceivedasan
educationalbenefit.”Som
ecourtshave
appliedthisprovision
todeclare
nondischargeablethe
claimfiled
bya
co-borrowerw
hopaid
offastudentloan. 28
According
tothese
courts,any“educationalbenefit”
thatthedebtorreceivestriggersthe
barriersagainstdischarge,and
itdoesnotmatterw
hothe
creditoris.
Thisisanextrem
elybroad
viewofsubsection
(A)(ii)of§
523(a)(8).The
legislativehistory
suggeststhatthe“educationalbenefit”
languagew
asnotintendedto
coverloantransactions. 29
Construing
subsection(A
)(ii)of§523(a)(8)to
applyto
loanswould
rendermuch
oftherem
ainingportionsofthe
subsectionsuperfluous. 30
Infact,ifallloansw
ere“educational
benefits,”there
would
havebeen
noreason
forCongressto
add§
523(a)(8)(B)in
2005m
akingprivate
studentloansnondischargeable.B
asedon
thisandotherreasoning,severalcourtshave
appropriatelyexcluded
obligationstoco-borrow
er’sfrom§
523(a)(8)’sprotections. 31
5.Private
StudentLoansand
Co-B
orrowers:A
utomatic
DefaultC
lauses
Privatestudentloan
contractstypicallyprovide
thatthefiling
ofbankruptcyby
theborrow
eroranyco-borrow
erisaneventofdefaultthatw
illtriggeraccelerationofthe
loan. 32
Thesecontractprovisionsare
routinelyenforced
byprivate
studentloancreditorsupon
thefiling
potentiallyclaim
protectedstatus);In
rePosner,434
B.R
.800(B
ankr.E.D.M
ich.2010)(§
523(a)(8)notintendedto
coveranyonew
hopaysoffa
studentloan,co-signorisnotalender).
28Inre
Corbin,506
B.R
.287,295(B
ankr.W.D
.Wash.2014)(§
523(a)(8)(ii)applieswhenever
debtorreceivedan
educationalbenefit,regardlessofwho
providedit);
Inre
Rust,510
B.R
.562,571
(Bankr.E.D
.Ky.2014)(construing
ambiguousterm
sofloanagreem
entsasiftheycreated
rightofsubrogationforco-borrow
erwho
paidoffloan,giving
co-borrowerallrightsoforiginal
lenderofformerloan).
Both
decisionserroneouslystate
thatthetextof§
523(a)(8)(A)(ii)
appearedaspartofthe
2005B
APC
PAam
endments.
Rust,510B
.R.at570;
Corbin,506
B.R
.at296.
Congressadded
thecurrent(A
)(ii)languageto
§523(a)(8)in
1990.See
Inre
Segal,57F.3d
342(3d
Cir.1995)(discussing
enactmentofw
hatisnow§
523(a)(8)(A)(ii)).
29Thelegislative
historystatesthatthe
language“extendsthe
Bankruptcy
Code’s
nondischargeabilityofstudentloansto
debtswhich
aresim
ilarinnature
tostudentloans.”
136C
ong.Rec.H
13288(O
ct.27,1990).30In
reScott,287
B.R
.470,474(B
ankr.E.D.M
o.2002)(applyingpre-2005
versionof§
523(a)(8),courtheldthatifthe
“educationalbenefit”language
“were
interpretedto
mean
thatalleducationalloansw
ereexcepted
fromdischarge
thenthe
firsttwo
categories…w
ouldcertainly
berendered
meaninglessand
superfluous”).31In
rePosner,434
B.R
.800(B
ankr.E.D.M
ich.2010);Inre
Pryor,234B
.R.716
(Bankr.W
.D.
Tenn.1999).See
alsoIn
reW
alker,439B
.R.854
(W.D
.Pa.2010)(debtorwho
tookover
obligationto
paystudentloan
aspartofmaritalagreem
entmay
dischargedebt;creditorex-
spousenotentitled
toprotectionsunder§
523(a)(8)simply
becauseobligation
isstudentloan).32The
Consum
erFinancialProtectionB
ureaureportsthatapproxim
ately90%
ofprivatestudent
loanswere
co-signedin
2011.See
CFPB
Mid-yearU
pdateon
StudentLoanC
omplaints,A
pril,2014.
ofabankruptcy
evenifthe
non-filingborrow
eriscurrentonthe
loanand
intendstocontinue
making
payments.
Forexample,m
anyprivate
studentloancreditorsw
illrefuseto
acceptinstallm
entpaymentsfrom
astudentborrow
erwhen
hisorherparent/co-borrowerfiles
bankruptcy,andw
illdemand
thatthefullloan
balancebe
paid.M
anydebtorsare
unaware
thattheirchildren’sstudentloansw
illbeputin
defaultbecauseoftheirbankruptcy
filing.
Section365(e)ofthe
Bankruptcy
Code
addresseswhetherthese
bankruptcyor“ipso
facto”clausesare
enforceablein
bankruptcy.B
ecausethatsection
expresslyprovidesthatsuch
clausesarenotenforceable
with
respecttoexecutory
contractsandunexpired
leases,many
courtshave
heldthatthey
arenotinvalid
undertheC
odew
ithrespectto
otherdebts. 33H
owever,som
ecourtshave
foundthatthe
Code
invalidatesipsofacto
clausesotherthanthose
specificallym
entionedin
section365(e)(1). 34A
tleastinthose
jurisdictionswith
favorablelaw
,debtorsmay
arguethatthese
automatic
defaultclausesinprivate
studentloansarenotenforceable.
Iftheco-borrow
er(oftena
parent)filesachapter13
case,thecodebtorstay
underCode
section1301
protectsthenon-filing
co-borrower.Itpreventscreditorsfrom
takingany
actionto
collectthedebtagainstco-borrow
erswho
havenotfiled
forbankruptcy,ifthedebtisbeing
paidunderthe
debtor’schapter13plan.
Evenifthe
debtor’splandoesnotprovide
forpaymentofthe
debt,thecodebtorstay
remainsin
effectuntilitisliftedby
thecourtupon
acreditor’srequest.
Ifthe
studentloancreditorinvokesthe
bankruptcyclause
againstthenon-filing
borrowerby
acceleratingthe
noteand
demanding
fullpaymentw
hilethe
codebtorstayisin
effect,thiswould
bean
attemptto
collectthedebtin
violationofthe
codebtorstay.C
ourtshavegenerally
permitted
either(orboth)thedebtorand
thenon-filing
co-borrowerto
filem
otionsforcontempt
seekingsanctionsagainsta
creditorwho
violatesthecodebtorstay. 35
Ifeitherthestudentorthe
co-borrowerfilesa
chapter13case,they
canpropose
aplan
provisionenjoining
theprivate
studentloancreditorfrom
enforcingthe
bankruptcyclause
orseeking
collectionfrom
thenon-filing
studentorco-borrower.
Bankruptcy
Rule
7001(7)providesthatan
adversaryproceeding
isnotneededifa
requestforinjunctivereliefism
adein
aplan.
Indistrictsthathave
modelchapter13
plans,thismay
beadded
asanon-standard
provision.
6.StudentL
oanC
ollectionC
osts
Inaddition
to“special”
incentivesforgoodperform
ance,studentloancollectorsreceive
acom
mission
ona
paymentm
adeby
theborrow
eraslongasthe
collectorhasbeenassigned
thefile,w
hetherornottheborrow
er’spaymentw
asinstigatedby
thatcollector’sactions.The
33E.g.,Inre
AM
RC
orp.,485B
.R.279,296-97
(Bankr.S.D
.N.Y
.2013)aff'd,730F.3d
88(2d
Cir.2013);In
reY
atesDev.,Inc.,241
B.R
.247,253(B
ankr.M.D
.Fla.1999),aff'd,256F.3d
1285(11th
Cir.2001).
34RiggsN
at.Bank
ofWashington,D
.C.v.Perry,729
F.2d982
(4thC
ir.1984);GeneralM
otorsA
cceptanceC
orp.v.Rose,21
B.R
.272,276(B
ankr.D.N
.J.1982).35In
reJuliao,2011
WL
6812542(B
ankr.E.D.M
ich.Nov
29,2011)(motion
filedby
bothdebtorand
codebtor);Inre
Bertolam
i,235B
.R.493,495
(Bankr.S.D
.Fla.1999)(motion
filedby
debtor);Inre
Hughes,2005
WL
1293982(B
ankr.M.D
.N.C
.May
2,2005)(same).
Departm
entofEducationthen
deductsanam
ountroughlyequalto
thecom
mission
ithaspaidits
collectorfromthe
borrower’spaym
ent.O
nlythe
amountleftoverafterthe
comm
issionispaid
isappliedto
interestandthen
principal,inthatorder. 36
TheH
igherEducationA
ctprovidesthatcollection
feesmustbe
“reasonable.”37The
Departm
entclaimsthatthisprovision
appliestoall
loans,wheneverm
ade. 38
Collection
costsshouldbe
recalculatedeach
yearafteraloan
goesintodefault.
Asto
eachloan
indefault,the
amountofthe
previousyear’scollection
costsshouldbe
removed
fromthe
balanceofthe
loanand
thenew
lycalculated
rateshould
beapplied.
Ratesshould
alsobe
recalculatedeach
time
theloan
istransferredfrom
oneentity
toanother. 39
Therehave
beenseveralchallengesbroughtby
bankruptcytrusteesalleging
thatstudentloan
collectioncostsare
unreasonablebecause
theyare
notrelatedto
actualcostsincurredin
theparticularborrow
er’scase.To
date,thesecaseshave
beenunsuccessful,and
thecourtshave
upheldthe
Departm
ent’sregulations. 40
Thesecasesdid
notaddressthepractice
ofincludingin
abankruptcy
proofofclaima
lump-sum
amountforprepetition
collectioncosts. 41
Studentloancollectorsare
notpermitted
toassessan
amountin
advanceforcollection
feesbutmustinstead
apportiona
percentageofeach
paymenttow
ardcollection
fees. 42In
aneffortto
preventup-frontloadingofcollection
costs,the
3634C
.F.R.§
682.404(f)(paymentsare
appliedfirstto
collectioncostsand
thento
otherincidentalchargessuch
aslatecharges,then
tointerestand
principal);seePadilla
v.PaycoG
en.A
m.C
redits,Inc.,161F.Supp.2d
264(S.D
.N.Y
.2001)(defendant’ssumm
aryjudgm
entmotion
deniedon
plaintiff’sclaimthatdebtcollectorinduced
borrowerto
make
adow
npaym
entbyagreeing
toapply,in
violationoffederallaw
,thepaym
enttoward
principalonly).3720
U.S.C
.§1091a(b)(1);34
C.F.R
.§682.410(b)(2).
38U.S.D
ep’tofEduc.,PCA
ProceduresManual:2009
EDC
ollectionsContract,version
1.2at
23(lastupdated
July12,2012).
39Seegenerally
Inre
Evans,322B
.R.429
(Bankr.W
.D.W
ash.2005).40See,e.g.,EducationalC
reditMgm
t.Corp.v.B
arnes,318B
.R.482
(S.D.Ind.2004),aff’d,
Black
v.EducationalCreditM
gmt.,459
F.3d796
(7thC
ir.2006);Inre
Evans,322B
.R.429
(Bankr.W
.D.W
ash.2005);seealso
United
Statesv.Larson,2010W
L76433
(D.M
inn.Jan.5,2010)(agreeing
with
Blackand
affirming
theD
epartment’suse
ofacostaveraging
basisforcalculating
collectionfees;noting
thatthismethod
ispossiblyunfairbutisa
“publicpolicy
issue”).41
Forexample,in
Inre
Martish,2015
WL
167154(B
ankr.E.D.N
.C.Jan
12,2015),thedebtor
hada
federalconsolidationstudentloan
inthe
amountof$11,202.95,w
itha
9%interestrate.
Afterfiling
aninitialchapter7
case,andm
akingapproxim
ately$39,835
inpaym
entsonthe
loan,a
proofofclaimw
asfiledin
thesubsequentchapter13
caseasserting
thatthedebtorstillow
ed$27,021.57,including
$5,289.57in
prepetitioncollectionscosts.
4234C
FR§
682.404(f).The
Departm
enthastakenthe
positionthata
borrowerisnotlegally
obligatedto
paycoststhathave
notbeenincurred.M
emorandum
ofPointsandA
uthoritiesSupporting
Motion
toD
ismiss,H
utchinsv.U.S.D
ep’tofEduc.,No.C
V-F-02-6256-O
WW
-D
LB,at31
(E.D.C
al.filedA
pr.25,2003)(citingH
.R.R
es.300,99thC
ong.at396(1986),
reprintedin
1986U
.S.C.C
.A.N
.977).Theagenciescan
chargethe
borroweronly
thosecoststhat
Departm
enthasclarifiedthatthe
borrowerisnotlegally
obligatedto
paycoststhathave
notbeenincurred.
TheD
epartmenthasrecognized
thatthepractice
ofloadingfeesup-frontcan
actuallydiscourage
repaymentand
inany
casedoesnotreflectactualcosts. 43
Although
theD
epartment’s
regulationpreventing
advanceassessm
entofcollectioncostsw
asnotaddressedin
theopinion,
onecourthasheld
thatalum
p-sumam
ountforcollectioncostscould
beincluded
ina
prepetitionclaim
againstthedebtorsasitw
asneitherunmatured
norcontingentasofthepetition
date. 44
Courtsgenerally
haveheld
thatcollectioncostsare
partofthetotalstudentloan
obligation,similarto
interestcharges,andtherefore
arenondischargeable. 45H
owever,a
fewcourtshave
heldthatthe
automatic
stayprohibitsstudentloan
creditorsfromcharging
latefees,
collectioncosts,and
penaltiestodebtorsduring
achapter13
bankruptcycase,and
thatthedebtors'chapter13
dischargespreventstudentloancreditorsfrom
everattempting
toassessthem
inthe
future. 46
7.T
reatmentofStudentL
oanD
ebtinC
hapter13
a.C
ureofa
Defaulton
aL
ong-Term
StudentLoan
Debtin
Chapter
13
Inthose
jurisdictionswhere
itisdifficulttoobtain
confirmation
ofaplan
providingfor
separateclassification
ofstudentloandebt,w
hichisdiscussed
below,a
usefulalternativeisto
curea
defaultonthe
studentloanpursuantto
11U
.S.C.§
1322(b)(5).Thissectionperm
itsthechapter13
debtorto“cure
adefaultand
maintain
paymentson
longterm
debtsonw
hichthe
finalpaym
entisdueafterthe
finalpaymentofthe
plan.”Thisdefinition
clearlyappliesto
anystudent
loanw
ithscheduled
paymentsthatw
illbedue
aftertheend
ofthechapter13
planperiod.
Anum
berofcourtshaveperm
ittedchapter13
debtorstodirectongoing
monthly
paymentsto
astudentloan
creditorunder§1322(b)(5). 47
havebeen
incurredasallocated
tothe
particularpayment.
43See61
Fed.Reg.60,482
(Nov.27,1996).
44Inre
Evans,322B
.R.429,438
(Bankr.W
.D.W
ash.2005)(“ECM
C'scalculation
ofthosecostsasa
matterofpreparation
ofitsclaimsw
asnotanassessm
entofapostpetition
claim;itw
asm
erelya
calculationofw
hatthedebtorsow
edasofthe
petitiondate”).
45E.g.,Inre
Belton,337
B.R
.471(B
ankr.W.D
.N.Y
.2006).46In
reB
oscaccy,442B
.R.501
(Bankr.N
.D.M
iss.2010)(adoptingreasoning
inIn
reH
arding);In
reH
arding,423B
.R.568
(Bankr.S.D
.Fla.2010).47In
reJohnson,446
B.R
.921(B
ankr.E.D.W
is.2011);Inre
Webb,370
B.R
.418(B
ankr.N.D
.G
a.2007)(debtormay
paygeneralunsecured
creditorsa1%
dividendthrough
planpaym
entsw
hilem
akingregularly
scheduledstudentloan
paymentsdirectly
tostudentloan
creditorpursuantto
11U
.S.C.§
1322(b)(5);Inre
Machado,378
B.R
.14,17(B
ankr.D.M
ass.2007)(inproviding
forcureand
maintenance
ofpayments,chapter13
plancan
allowforcurrentpaym
entsto
bepaid
bydebtordirectly
tocreditor,w
hileonly
paymentsto
cureprebankruptcy
arrearageneed
bepaid
throughtrustee
andsubjectto
trustee’scomm
ission);In
reK
night,370B
.R.429
(Bankr.N
.D.G
a.2007)(paymentofstudentloan
undersection1322(b)(5)perm
itteddespite
BA
PCPA
changestodisposable
income
testundersection1325(b)(1)(B
));Inre
William
s,253B
.R.220,227-28
(Bankr.W
.D.Tenn.2000);In
reC
handler,210B
.R.898
(Bankr.D
.N.H
.
Othercourtsrefuse
togive
effectto§
1322(b)(5)asadistinctC
odeprovision
andhave
requireddebtorsproposing
topay
ongoingstudentloan
paymentsdirectly
fromcurrentincom
eto
satisfythe
unfairdiscrimination
testunder§1322(b)(1). 48
Some
courtshaveinterpreted
aprovision
addedto
theC
odeby
the2005
amendm
entsaslim
itingthe
righttocure
andm
aintainpaym
entsona
nondischargeablestudentloan
inchapter
13.Section
1322(b)(10)statesthatifachapter13
planprovidesforthe
paymentofongoing
post-petitionintereston
anondischargeable
debt,theinterest“m
aybe
paidonly
tothe
extentthatthe
debtorhasdisposableincom
eavailable
topay
suchinterestafterm
akingprovision
forfullpaym
entofallallowed
claims.”
49Som
ecourtshave
interpretedthisam
endmentto
requirethe
debtortopropose
topay
allcreditors’claimsin
fullduringthe
chapter13case
ifthedebtor
wishesto
continuem
akingstudentloan
paymentsthatinclude
interest. 50Othercourtsrejectthis
view,finding
that§1322(b)(5)isa
specificprovision
thatcanbe
readconsistently
with
them
oregenerallanguage
of§1322(b)(10). 51
1997);Inre
Sullivan,195B
.R.649,658
(Bankr.W
.D.Tex.1996)(pursuantto
§1322(b)(5)
debtormay
maintain
currentpaymentsw
hilecuring
defaultwithoutrunning
afoulof§1322(b)(1));In
reC
ox,186B
.R.744,746-47
(Bankr.N
.D.Fla.1995);In
reB
enner,156B
.R.
631,634(B
ankr.D.M
inn.1993)(usingcure
andm
aintainprovisionsof§
1322(b)(5)isaform
ofseparate
classificationthatm
eetsthefairnessstandard
of§1322(b)(1)).
48Inre
Labib-Kiyarash,271
B.R
.189(B
.A.P.9th
Cir.2001)(use
ofsection1322(b)(5)is
subjecttodebtorshow
ingthatclassification
isfairundersection1322(b)(1));In
reK
ubeczko,2012
WL
2685115(B
ankr.D.C
olo.July6,2012);In
reZeigafuse,2012
WL
1155680(B
ankr.D
.Wyo.A
pr.5,2012);Inre
Pracht,464B
.R.486,490
(Bankr.M
.D.G
a.2012);Inre
Boscaccy,
442B
.R.501
(Bankr.D
.Miss.2010)(applying
§1322(b)(1)tocure
classification);Inre
Harding,423
B.R
.568(B
ankr.S.D.Fla.2010);In
reK
ruse,406B
.R.833
(Bankr.N
.D.Iow
a2009);In
rePora,353
B.R
.247(B
ankr.N.D
.Cal.2006)(fairnessstandard
appliestocure
classification);Inre
Simm
ons,288B
.R.737
(Bankr.N
.D.Tex.2003);In
reEdw
ards,263B
.R.
690(B
ankr.R.I.2001);In
reThibodeau,248
B.R
.699(B
ankr.D.M
ass.2000).4911
U.S.C
.§1322(b)(10).
50In
reStull,489
B.R
.217,223/-/24(B
ankr.D.K
an.2013)(§1322(b)(10)prohibitspaym
entofintereston
nondischargeablestudentloan
claimin
chapter13unlessallunsecured
claimspaid
infull);In
rePrecise,501
B.R
.67,72(B
ankr.E.D.Pa.2013)(agreeing
with
Stullindicta);In
reK
ubeczko,2012W
L2685115
*7(B
ankr.D.C
olo.July6,2012)(in
enacting§
1322(b)(10)C
ongressintendedbroad
restrictionon
cureand
maintenance
ofpaymentsunder§
1322(b)(5)forunsecured
debts).51
Inre
Brow
n,500B
.R.255,266
(Bankr.S.D
.Ga.2013)(§
1322(b)(5)specificallyappliesto
acure
inchapter13
andisnotsubjectto
thelim
itsonpaym
entofpost-petitioninterestfound
in§
1322(b)(10));Inre
Webb,370
B.R
.418,422(B
ankr.N.D
.Ga.2007)(§
1322(b)(5)isaspecific
provisionapplicable
tocure
ofadefaultin
along
termdebtand
isnotcontrolledby
them
oregeneralterm
sof§1322(b)(10));In
reFreem
an,2006W
L6589023
(Bankr.N
.D.G
a.2006)(§
1322(b)(10)notapplicablew
hendebtorim
plementing
cureand
maintain
provisionof§
1322(b)(5));Inre
William
s,253B
.R.220,227
(Bankr.W
.D.Tenn.2000)(pre-B
APC
PAdecision,“The
maintenance
ofongoingpaym
entsnecessarilyinvolvesthe
paymentofpost-
petitioninterest.”).
b.C
uringD
efaultsand/orM
aintainingPaym
entsonA
dministrative
Repaym
entPlans
A“cure”
inchapter13
under§1322(b)(5)paysongoing
scheduledinstallm
entsastheycom
edue
onthe
long-termdebtw
hilesim
ultaneouslym
akingm
onthlypaym
entstopay
backany
pre-bankruptcyarrearage.
The“cure”
nullifiesthecontractualconsequencesofany
pre-bankruptcy
defaultandrestoresthe
pre-defaultstatusquo. 52Thedebtor’splan
canadditionally
providethatany
prepetitiondefaultisbeing
“waived”
pursuantto§
1322(b)(3).Thismeans,for
example,thatdebtorsw
hofile
forchapter13reliefafterdefaulting
ona
long-termstudentloan
repaymentplan
shouldbe
ableto
reinstateand
maintain
participationin
sucha
repaymentplan. 53
Thiscanbe
veryhelpfulfora
debtorwho
hasdefaultedon
anincom
e-basedrepaym
entplan(IB
R)and
isnoteligibleforloan
rehabilitationorconsolidation
asaw
ayto
remedy
thedefault
undertheD
epartmentofEducation
(DO
E)regulations,becauseforexam
plethey
havehad
apriorrehabilitation
orconsolidationorare
subjecttoa
wage
garnishment.
Confirm
ationofthe
debtor’splanw
illpreventthefederalstudentloan
creditorfromtreating
thestudentloansasin
defaultorforbearanceduring
thechapter13
planorfrom
denyingthe
debtoranybenefitsunderthe
IBR
orotherrepaymentplan
(suchascredittow
ardstherequired
paymentperiod
fordischarge).Section
525(c)willalso
preventthefederalstudentloan
creditorfromdiscrim
inatingagainstthe
debtorbeforeand
afterthechapter13
casebased
onthe
bankruptcyfiling.
Achapter13
filingcan
protectthedebtorin
thissituationeven
ifthedebtorisnotin
defaultprepetition.Ifthe
debtorhasenteredinto
am
odificationorforbearance
agreementon
aprivate
studentloan,oranIB
Rorotheradm
inistrativerepaym
entplanin
thecase
ofafederal
loan,andperform
anceby
thepartiesrem
ainsdueatthe
time
thebankruptcy
isfiled,itcanbe
arguedthatthe
modified
loanagreem
entisanexecutory
contract. 54While
itisgenerallyaccepted
thatanagreem
entwhere
theonly
remaining
obligationisthe
paymentofm
oney,suchasprom
issorynote,isnotan
executorycontract, 55an
administrative
repaymentplan
(suchas
PAY
EorIB
R)involvescontinuing
performance
bythe
borrower,creditorand
Departm
entof
52Inre
Taddeo,685F.2d
24,27(2d
Cir.1982).
53Seee.g.In
reW
ard,392B
.R.788
(Bankr.W
.D.M
o.2008)(debtormay
curearrearage
onm
odifiedm
ortgage);Inre
Gellerm
an,263B
.R.691
(Bankr.D
.R.I.2001)(debtorperm
ittedto
curem
ortgagedefaultbased
onprepetition
repaymentagreem
entwith
HU
Dthatdid
notrequirepaym
entofsecuritizedarrearage
amount);
Inre
Epps,110B
.R.691,707
(E.D.Pa.1990)
(debtormay
curem
ortgagedefaultbased
onterm
sofgovernment-sponsored
paymentplan).
54An
executorycontractis“a
contractwhere
theobligation
ofboththe
bankruptandthe
otherparty
areso
farunperformed
thatthefailure
ofeithertocom
pleteperform
ancew
ouldconstitute
am
aterialbreachexcusing
performance
oftheother.”
SeeV
ernC
ountryman,Executory
Contracts
inB
ankruptcy:PartI,57M
inn.L.Rev.439,460
(1974).55See
MatterofR
ose,21B
.R.272,275
(Bankr.D
.N.J.1982)(quoting
House
ReportN
o.95-595,95th
Cong.,1stSess.347
(1977);SeeSenate
ReportN
o.95-989,95thC
ong.,2dSess.58
(1978)).
Education(beyond
simply
making
andreceiving
payments).
Thiscontinuingperform
anceincludesthe
annualcertificationofincom
eand
adjustmentofpaym
entsbasedon
income
changes,andthe
dischargeofthe
obligationafter20
to25
yearsofparticipationon
theplan. 56
Ina
chapter13case,the
debtorcanassum
ethe
modified
studentloancontract,including
theterm
sofanyPA
YE
orIBR
.Section
365(e)willpreventthe
studentloancreditororservicer
frominvoking
anycontractterm
or“applicablelaw
”(including
DO
Eregulations)againstthe
debtorthatwould
preventpaymentsfrom
beingapplied
properlyunderthe
repaymentplans.
Inotherw
ords,thebankruptcy
cannotbethe
basisforthedebtorto
loseany
rightsundertherepaym
entplans,andallpaym
entsmade
duringthe
chapter13plan
shouldcounttow
ardstheforgivenessordischarge
rightsunderthefederalrepaym
entplansasiftherehasbeen
noprepetition
default.
c.Separate
Classification
Absenta
findingofundue
hardshipunder11
U.S.C
.§523(a)(8),debtorsare
obligatedto
payupon
completion
oftheirchapter13bankruptcy
theam
ountowed
onstudentloan
debtthathasnotbeen
paidduring
theplan.
Thisincludesanyunpaid
interestonthe
debtthathasaccruedduring
theplan. 57W
henthatisthe
case,itisoftenin
thedebtor’sinterestto
payoffasm
uchof
thestudentloan
debtinthe
chapter13plan
asispermissible.
One
way
topay
more
onthe
studentloanthan
onotherunsecured
debtsistoseparately
classifythe
studentloanforpaym
entsatahigherpercentage
thanotherunsecured
debtspursuantto
11U
.S.C.§
1322(b)(1).R
ecentcaseshavebeen
divided,bothin
them
eansofanalysisandthe
result,astow
hetherstudentscanseparately
classifystudentloans.D
ebtorsareperm
ittedto
discriminate
among
similarclassesofcreditorsin
aplan.
Theissue
iswhethera
separateclassification
foronecreditordiscrim
inatesunfairlyagainstothercreditors.
Thefollow
ingare
casesum
mariesillustrating
argumentsfavoring
separateclassification
ofstudentloandebt:
Debtor
would
losedischarge
underPublic
Loan
Forgivenessprogram;
Discrim
inationadvancesthe
goaloffreshstartand
thepublic
policyobjective
ofpaying
offstudentloandebts.
Inre
Pracht,464B
.R.486
(Bankr.M
.D.G
a.2012)(separateclassification
andhigher
paymentrate
forstudentloandebtnotunfairly
discriminate
becauseitallow
eddebtorto
participatein
thePublic
LoanForgivenessprogram
andgave
herthechance
tow
riteoff
approximately
$50,000ofstudentloan
debt.Such
discrimination
advancedthe
goalofa
56SeeIn
reW
ard,392B
.R.788
(Bankr.C
t.W.D
.Mo.2008)(forbearance
agreementon
mortgage
loanw
asexecutorycontractthatcould
beassum
edby
thedebtor).
57Ifthestudentloan
debtisnondischargeable,postpetitioninterestw
illnotbedischarged.See
Inre
Kielisch,258
F.3d315
(4thC
ir.2001);Inre
Pardee,218B
.R.916
(B.A
.P.9thC
ir.1998),aff’d,187
F.3d648
(9thC
ir.1999);Inre
Jordan,146B
.R.31
(D.C
olo.1992).
freshstartforthe
debtorandthe
publicpolicy
objectiveofpaym
entofstudentloandebts.
Thecostofthisdiscrim
inationto
unsecuredcreditorsw
as5%,ora
totalofonly$5,000).
Discrim
inationnotunfair
when
thereisno
harmto
theunsecured
creditors.
Inre
Potgieter,436B
.R.739
(Bankr.M
.D.Fla.2010)(chapter13
planthatseparately
classifiedstudentloan
obligationand
proposedto
payitatthe
contractrateoutside
oftheplan
didnotunfairly
discriminate
becausethe
planprovided
forfullrepaymentofall
generalunsecuredclaim
s;thestudentloan
obligationw
asnon-dischargeablesuch
thatthedebtw
ouldbe
fullyrepaid
atsome
point;andthe
debtorhadthe
right,under§1322(b)(4),“to
provideforpaym
entsonany
unsecuredclaim
tobe
made
concurrentlyw
ithpaym
entsonany
securedclaim
”).
There
isareasonable
basisand/ora
lessdiscriminatory
approachw
ouldleave
thedebtor
orcreditorsw
orseoff.
Inre
Mason,456
B.R
.245(B
ankr.N.D
.W.V
a.2011)(separateclassification
toallow
studentloancreditorto
receivea
higherpercentagepaym
entthanotherunsecured
creditorsmay
beallow
edifthe
debtorcanarticulate
anon-arbitrary
reasonw
hythe
discrimination
isnecessaryand
demonstrate
thatalessdiscrim
inatoryapproach
isnotadvisable).
Inre
Boscaccy,442
B.R
.501(B
ankr.N.D
.Miss.2010)(in
consolidatedbankruptcy
cases,debtors’separateclassification
forlong-termstudentloan
debttoallow
forcureand
maintenance
notunfairlydiscrim
inatoryw
hensuch
classificationreduced
payments
tootherunsecured
creditorsby21%
and26%
becausefailure
tom
aintainpaym
entsonstudentloan
debtswould
leavedebtorsin
am
uchw
orseposition
thanthey
were
inprior
tofiling;separate
classificationw
asunfairdiscrimination
where
equaltreatmentofall
unsecuredcreditorsw
ouldreduce
thestudentloan
paymentby
20%w
hileincreasing
thedistribution
toothercreditorsby
80%).
Inre
Kalfayan,415
B.R
.907(B
ankr.S.D.Fla.2009)(separate
classificationofstudent
loanstoallow
formaintenance
ofpaymentsnotunfairly
discriminatory
becauseit
benefitedthe
verycreditorsw
how
erebeing
discriminated
against;debtorriskedlosing
heroptometry
license,understatelaw
,ifshefellbehind
onherstudentloan
payments
which
would
jeopardizeherability
topay
otherunsecuredcreditors).
Inre
Webb,370
B.R
.418(B
ankr.N.D
.Ga.2007)(directpaym
entstostudentloan
creditorsinaccordance
with
contracttermsisnotunfairdiscrim
inationbecause
generalunsecured
creditorswould
realizeonly
anadditional.2%
dividendin
theabsence
ofsuchdiscrim
inationw
hiledebtorsw
ouldotherw
isesufferneedlessaccrualofinterestand
penaltiesandm
ayface
theconsequencesofdefaultupon
completion
ofthechapter13
plan).
Inre
Freshly,69B
.R.96
(Bankr.N
.D.G
a.1987)(discrimination
notunfairwhere
separateclassification
ofstudentloanfrom
otherunsecureddebtw
asnecessaryforthe
debtor’srehabilitationunderchapter13,i.e.itw
ouldallow
himto
returnto
university
andearn
adegree
andin
lightofthepublic
policygoalofinsuring
repaymentofstudent
loans;planproposed
tofullpay
studentloandebtof$2,258.00
while
paying1%
of$5,314.53
ofremaining
unsecureddebt).
Paymentofstudentloans,ahead
ofotherunsecured
debt,notunfairdiscrim
ination
Inre
Foreman,136
B.R
.532(B
ankr.S.D.Iow
a1992)(debtor’splan,w
hichproposed
concurrentpaymentofstudentloansand
asecured
claim,to
befollow
edby
fullpayment
oftherem
ainingunsecured
claimsdid
notunfairlydiscrim
inateunderthe
testsetforthin
MatterofTuckerbecause
theplan
providedforfullrepaym
entofallunsecuredclaim
s;the
studentloanobligationsw
erenon-dischargeable;and
thedebtorhad
arightto
under§1322(b)(4)to
proposethisrepaym
entstructure).
Fundsusedare
inexcessofprojected
disposableincom
e.
Inre
Stull,2013W
L1279069
(Bankr.D
.Kan.M
ar.27,2013)(distinguishingthiscase
fromIn
reK
ubezcko,which
involveda
belowm
ediandebtor,courtholdsthatan
above-m
ediandebtor’schapter13
planto
separatelyclassify
andpay
anon-dischargeable
obligationfrom
income
earnedin
excessoftheprojected
disposableincom
ecom
mitted
topay
unsecureddebtdoesnotunfairly
discriminate;plan
inthiscase
ultimately
rejectedbecause
itproposedto
payintereston
thestudentloan,w
hichisprohibited
by§
1322(b)(10)absentprovisionto
payallallow
edclaim
sinfull).
Discrim
inationnotunfair
solong
asunsecuredcreditorsreceive
atleastasmuch
astheyw
ouldin
chapter7
proceeding
Inre
Tucker,159B
.R.325
(Bankr.D
.Mont.1993)(plan
thatproposedto
paynondischargeable
studentloandebtin
fullwhile
onlypaying
29%dividend
toother
unsecuredcreditorsdid
notunfairlydiscrim
inatebecause
creditorswould
otherwise
receivelittle
ornopaym
entunderaC
hapter7filing;the
discrimination
hada
reasonablebasis,i.e.allow
sfullrepaymentofstudentloans;allow
sforafresh
start;thediscrim
inationw
asnotproposedin
badfaith;and
thedegree
ofdiscrimination
was
directlyrelated
tothe
rationaleforthe
discrimination).
Inre
Boggan,125
B.R
.533(B
ankr.N.D
.Ill.1991)(“chapter13plan
may
providefora
greaterpercentagepaym
enttoan
educationallenderthanto
otherunsecuredcreditors,
butnotbyreducing
thepaym
entstothose
othercreditorstoa
levelbeloww
hattheyw
ouldgetin
aC
hapter7liquidation
ofthedebtor'sassets”;plan
thatproposedto
paystudentloan
debtsinfullbutonly
15%ofotherunsecured
debtsapproved).
Thefollow
ingare
casesum
mariesin
which
separateclassification
ofstudentloandebt
wasnotperm
itted:
Nondischargeability,by
itself,doesnotjustifydiscrim
ination
Inre
Groves,39
F.3d212
(8thC
ir.1994)(nondischargeabilityofstudentloansdoesnot,
byitself,justify
“substantial”discrim
inationagainstgeneralunsecured
debt;additionally,a
debtor’sinterestina
freshstartdoesnotjustify
separatelyclassifying
studentloansforthe
solepurpose
ofpayingthose
debtsina
mannerthatprejudicesotherunsecured
claims).
Inre
Sperna,173B
.R.654
(B.A
.P.9thC
ir.1994)(nondischargeability,onitsow
n,isnota
reasonablebasisforpreferentialtreatm
entofstudentloansanddoesnotdem
onstratethatsuch
discrimination
isnecessary;recordin
thesecasesdid
notprovidea
sufficientevidence
todeterm
ineifdiscrim
inationin
favorofstudentloanswasunfair;atissue
were
two
chapter13plansthatproposed
topay
studentloansinfullw
hilepaying
otherunsecured
debtlesseramounts,i.e.1.4%
and12.21%
)
McC
ulloughv.B
rown,162
B.R
.506(N
.D.Ill.1993)(chapter13
plansthatproposedto
paynondischargeable
studentloansinfulland
otherunsecuredclaim
sbetween
10%and
20%could
notbeconfirm
edon
thebasisofnondischargeability;courtholdsthatfora
planto
passtheunfairdiscrim
inationtest“debtorm
ustplacesom
ethingm
aterialontothe
scalestoshow
acorrelative
benefittothe
otherunsecuredcreditors”).
Studentloansco-signedby
parentsforchildren
donotfallinto
theconsum
erdebtexception
andthusm
ustmeetthe
unfairdiscrim
inationrequirem
ent
Inre
Santana,480B
.R.222
(Bankr.D
.P.R.2012)(lim
itingthe
applicationofthe
§1322(b)(1)consum
erdebtexceptionto
co-signeddebtacquired
forthebenefitofthe
debtorratherthana
co-signer,courtholdsthatastudentloan
co-signedby
debtorfatherforhisson
didnotfallw
ithinthe
exceptionbecause
studentsloansgenerallybenefitthe
co-signerandnotthe
debtor).
Freshstartand/or
publicpolicy
infavor
paymentofstudentloansisnot
reasonablejustification
fordiscrim
ination
Inre
Birts,2012
WL
3150384at4
(E.D.V
a.Aug.1,2012)(reversing
bankruptcycourt
approvalofchapter13plan
thatproposedto
paystudentloansoutside
oftheplan
therebyallow
ingthe
studentloanlenderto
bepaid
more
thanthree
timesasm
uchasother
unsecuredcreditorseven
thoughthe
studentloandebtcom
priseda
thirdoftotal
unsecureddebt.
Debtor’sstatusasa
singlem
otherwith
threechildren,hergeneric
interestina
“freshstart”
anda
strongpublic
policyin
favorofthefederalstudentloan
programw
ereinsufficientto
justifydiscrim
inationin
favorofthenon-dischargeable
studentloandebt;no
caselaw
supportedthisfirstreason
while
theotherreasonsw
erenot
uniqueand
existinevery
bankruptcycase
involvingstudentloans).
Inre
Bentley,266
B.R
.229(B
.A.P.1stC
ir.2001)(chapter13plan
topay
debtors’studentloan
debtinfullbuta
3.6%dividend
tootherunsecured
creditorswasunfair
discrimination;debtors’interestin
afresh
startdidnotjustify
discrimination
ina
planthatproposed
topay
onlythe
minim
umrequired
intothe
plan,i.e.projecteddisposable
income
overthreeyears.
Courtholdsthatw
herea
planredistributesbenefitsand
burdens
tobenefitthe
debtorbutburdenthe
credit,itcanonly
befound
fairifthereissom
eother
correlativebenefitto
theunsecured
creditors).
Avoiding
harmto
thedebtor
isnotareasonable
basisfordiscrim
ination
Inre
Kubeczko,2012
WL
2685115(B
ankr.D.C
olo.July6,2012)(unfairdiscrim
inationin
achapter13
planthatseparately
classifiedstudentloan
debtandproposed
topay
a48.86%
dividendon
thatclaimw
hilerem
ainingunsecured
creditorswould
bepaid
adividend
of0.27%.
Absentthe
separateclassification,allunsecured
creditorswould
receivea
dividendofapproxim
ately8.06%
.The
factthatseparateclassification
andpaym
entofthestudentloan
would
haveprevented
debtor’sdefaultonstudentloansand
theaccrualofsubstantialinterestw
asnotenoughto
justifythe
discrimination).
Inre
Knecht,410
B.R
.650(B
ankr.D.M
ont.2009)(debtorfailedto
demonstrate,under
thefour-factorW
olfftest,chapter13plan
thatproposedto
paym
orethan
$36,000to
studentloandebtand
nothingto
generalunsecuredcreditorsdid
notunfairlydiscrim
inate;debtor’ssolebasisforthe
discrimination
wasnotknow
ingifhe
would
liveorw
orklong
enoughto
repayhisstudentloan
debtbecauseofhealth
issuesbuthefailed
tolink
hishealthissuesto
hislifespan
orhisabilityto
earna
respectablew
ageafter
completion
oftheplan;debtoradm
ittedthathe
couldcarry
outtheplan
withoutthe
discrimination;there
wasno
evidencethatthe
planw
asproposedin
goodfaith;and
noevidence
thattheproposed
discrimination
wasrelated
tothe
basisorrationaleforthe
discrimination).
Discrim
inationunfair
inthe
absenceofproofthatitisnecessary
orreasonable
Inre
Thibodeau,248B
.R.699
(Bankr.D
.Mass.2000)(debtorfailed,underLesertest,to
demonstrate
thatplanto
separatelyclassify
andfully
paystudentloan
arrearages,m
aintainstudentloan
paymentsoutside
ofplanand
paya
27%dividend
onothergeneral
unsecuredclaim
s,while
devotinglessthan
thefullam
ountofdebtor’snetdisposableincom
eto
paymentsunderthe
plan,didnotunfairly
discriminate).
Inre
Gonzalez,206
B.R
.239(B
ankr.S.D.Fla.1997)(chapter13
planthatproposed
topay
studentloandebtin
fullanda
6%dividend
tounsecured
creditorscouldnotbe
confirmed
becausedebtor’soffered
noproofofthe
discrimination
being“fair”
or“necessary”).
Inre
Renteria,2012
WL
1439104(B
ankr.D.C
olo.Apr.26,2012)(below
median
income
debtors’chapter13plan
toseparately
classifystudentloansto
allowfor64%
repaymentofthose
claimsover60
month
periodversusa
1%repaym
entofallotherunsecured
claimsconstituted
unfairdiscrimination
undertheK
ing/Simm
onstestandM
achadofram
ework.
ThePlan
failedunderK
ing/Simm
onsbecausethe
generalunsecured
creditorswould
receivelessthan
theyw
ouldabsentthe
separateclassification,
i.e.1%versus12%
.Italso
failedunderM
achadobecause
thedebtorsdid
notproposeto
curestudentloan
arrearagesandthere
wasno
evidencethatthe
discriminatory
treatment
wasnecessary
toensure
thedebtorsw
ouldnotbe
worse
offattheend
ofthePlan).
d.A
voidingU
nfairD
iscrimination
byfiling
“Chapter
20”
An
optionforavoiding
the“unfairdiscrim
ination”argum
entwould
beforthe
debtortofirstfile
achapter7
case,obtaina
dischargeofallothergeneralunsecured
claims,and
thenfile
achapter13
todealw
iththe
non-dischargeablestudentloans.
Thisiscolloquiallyknow
nasa
“chapter20”case. 58
Inthe
secondbankruptcy,there
would
beno
otherunsecuredclaim
sagainstw
hichto
unfairlydiscrim
inate.C
onfirmation
ofthedebtor’schapter13
planin
thissituationm
aybe
subjecttogreatercourtscrutiny
astow
hethertheplan
wasfiled
ingood
faith. 59
e.PreferentialT
reatmentA
llowed
forD
ebtswith
Co-Signors
Section1322(b)(1)ofthe
Code
containstwo
distinctclauses.Thefirstclause
allowsthe
debtortodesignate
aclassofunsecured
claimsforfavorable
treatment,provided
thatthebeneficialclassification
doesnotdiscriminate
unfairlyagainstotherunsecured
claims.
Thesecond
clauseof§
1322(b)(1)createsaspecific
exceptionto
thisgeneralrule.Itstates,“how
ever,suchplan
may
treatclaimsfora
consumerdebtofthe
debtorifanindividualisliable
onsuch
consumerdebtw
iththe
debtordifferentlythan
otherunsecuredclaim
s.”C
ongressaddedthissecond
clausein
1984am
endmentsto
theC
ode.Thepurpose
oftheam
endmentw
astoprotectnon-filing
co-obligorsondebtsofthe
debtor.Otherw
isethese
co-obligorscouldface
ramped-up
collectionactions,leading
potentiallyto
theirfilingtheirow
nbankruptcy
petitions. 60
Infashioning
theam
endment,C
ongressintendedto
overruledecisionsthatw
ouldhave
preventedthe
chapter13debtorfrom
continuingto
paya
creditoronthe
jointconsumerdebtthe
amountthatcreditorw
ouldhave
continuedto
receiveabsentthe
bankruptcyfiling. 61
Certain
courtsconstruingthe
secondclause
of§1322(b)(1)have
implied
intothe
textanobligation
thatthedebtorm
ustalsoshow
alack
ofunfairdiscrimination
inthe
treatmentofthe
co-signeddebt. 62
Thereisno
basisforthisrequirement,asthe
plainlanguage
ofthesecond
clausegivesthe
debtoranunrestricted
righttoclassify
certainco-debtorclaim
sseparately. 63Thedistinction
createdby
thesecond
clausem
akeslittlesense
iftheunfairdiscrim
inationtestapplies
underthesecond
clausein
thesam
em
annerthatitdoesunderthefirst.Separate
classificationshould
beperm
ittedso
longasthe
debtisaconsum
erdebtandw
asincurredforthe
benefitofthe
58TheB
ankruptcyC
odedoesnotprohibita
debtorfromfiling
achapter13
caseafterreceiving
adischarge
inan
earlierchapter7case.
SeeJohnson
v.Hom
eB
ank,501U
.S.78(1991).
59Inre
Metz,67
B.R
.462(9th
Cir.B
.A.P.1986)(chapter20
isnotaperse
badfaith
filing).See
alsoB
raniganv.D
avis(Inre
Davis),716
F.3d331
(4thC
ir.2013).60See
Inre
Russell,503
B.R
.788,796(B
ankr.S.D.O
hio2013)(discussing
legislativehistory
ofamendm
ent).61In
reR
enteria,470B
.R.838,844-46
(B.A
.P.9thC
ir.2012);Inre
Russell,503
B.R
.788,796(B
ankr.S.D.O
hio2013).
62Seee.g.In
reLinton,2011
WL
3207366(B
ankr.E.D.V
a.July27,2011)(agreeing
with
courtsthatrequire
some
considerationofdegree
ofdiscriminatory
treatment,butfinding
100%paym
entofstudentloan
debtswhile
otherunsecuredcreditorsreceive
5%to
6%to
beacceptable).
63In
reR
ivera,490B
.R.130
(B.A
.P.1stCir.2013);
Inre
Renteria,470
B.R
.838,845-46(B
.A.P.9
thCir.2012).
debtor. 64f.G
raduatedPaym
entStructuresforStudentL
oansinC
hapter13
Plans
Anotherapproach
mightbe
toestablish
afive-yearplan,notseparately
classifythe
studentloanforthe
firstthreeyearsofthe
plan,andthen
classifyitforgreaterpaym
entduringthe
plan’sfinaltwo
years. 65Thebasisforthisapproach
istheB
ankruptcyC
odeprovision
thatrequiresdisposable
income
onlyto
bepaid
outoverthreeyears. 66
Any
amountthatcreditors
receivein
thefinaltw
oyearsw
ouldbe
abonusin
anyevent.C
ourtshavespliton
whetherthey
willallow
thisseparateclassification
ofstudentloansinyearsfourand
fiveofa
chapter13plan. 67
Asa
relatedoption,ifthe
planisvoluntarily
extended,forexample
from36
to60
months,the
plancould
provideforpreferentially
highpaym
entstothe
studentloancreditor
duringthe
first36m
onths.Any
shortfalltonon-studentloan
creditorsoccurringduring
thefirst
threeyearscould
bem
adeup
bydirecting
additionalpaymentsto
themduring
thefourth
andfifth
years. 68Thiswould
allowfora
consistentlyhigherpaym
enttothe
studentloancreditor
throughouttheentire
planperiod.
g.O
ver-Median
Income
DebtorsM
ayD
esignateA
llTheir
Discretionary
Income
forStudentL
oanPaym
ents
Them
eanstestingcalculation
canw
orkto
thebenefitofan
above-median-incom
echapter13
debtorwho
wishesto
continuem
akingregularpaym
entsona
nondischargeablestudentloan.
Where
thedebtor’s“m
onthlydisposable
income”
amountfrom
hisorherForm22C
is$0
oranegative
number,bankruptcy
courtshavegenerally
allowed
above-median
income
chapter13debtorsto
useasm
uchoftheirdiscretionary
income
astheyw
ishto
pay
64SeeIn
reSantana,480
B.R
.222(B
ankr.D.P.R
.2012)(debtor-parentwho
co-signedstudent
loanforbenefitofson
couldnotseparately
classifydebtundersecond
clauseofsection
1322(b)(1)becauseloan
notforbenefitofparent).65
Inre
Simm
ons,288B
.R.737
(Bankr.N
.D.Tex.2003)(plan
providingfor100%
repayment
ofstudentloanand
zeropercentto
generalunsecuredcreditorsm
aybe
confirmed
when
allofdebtor’sdisposable
income
paidinto
planforfirstthirty-six
monthsand
studentloancreditor
paidin
monthsforty-one
throughforty-eightofplan);In
reStrickland,181
B.R
.598(B
ankr.N
.D.A
la.1995)(holdingthatnondischargeable
studentloandebtcould
notbetreated
more
favorablythan
otherunsecuredclaim
sforfirstthirty-sixm
onthsofchapter13plan,but
remaining
twenty-fourm
onthscouldbe
devotedsolely
topaym
entofstudentloan).6611
U.S.C
.§1325(b)(1)(B
).67C
ompare
Inre
Stickland,181B
.R.598
(Bankr.N
.D.A
la.1995)(allowing
separatetreatm
entin
yearsfourandfive),and
Inre
Rudy,1993
WL
365370(B
ankr.S.D.O
hio1993)(sam
e),with
Inre
Sullivan,195B
.R.649
(Bankr.W
.D.Tex.1996)(notallow
ingseparate
classification).68See
e.g.Inre
Perrine,2001W
L34076434
(Bankr.C
.D.Ill.July
13,2001)(suggestingdebtor
couldm
inimize
disparityin
treatmentofstudentloan
andnon-studentloan
unsecuredcreditors
byextending
planterm
sixm
onthsbeyondthe
proposed36
months).
studentloancreditorsata
rategreaterthan
otherunsecuredcreditors. 69
h.StudentL
oanPaym
entsAs“SpecialC
ircumstances”
Under
theM
eansTest
Inorderto
reducecurrentm
onthlyincom
eunderthe
meanstest,an
above-median-
income
debtorwillw
anttoshow
them
aximum
allowable
expendituresandexpenses.
Studentloan
paymentsw
ouldappearto
bean
obviouschoiceto
applytow
ardthisreduction.
Unfortunately,studentloan
debtpayments,like
mostgeneralunsecured
debts,arenotallow
abledeductionsfrom
currentmonthly
income
forthem
eanstestcalculation. 70Y
et,thereisstilla
way
inw
hichthe
debtormay
usestudentloan
paymentsto
reducecurrentm
onthlyincom
eand
avoidthe
presumption
ofabuse.A
fterdeductionsforallowed
expenditures,theC
odeperm
itsthedebtorto
rebutthepresum
ptionofabuse
bydem
onstrating“specialcircum
stances”thatm
aybring
thedebtor’sdisposable
income
underthepresum
edabuse
tolerancelevelsetby
them
eanstestform
ula. 71The
Code
definesthese“specialcircum
stances”only
generally.The
circumstancesm
ust“justifyadditionalexpensesoradjustm
entsofcurrentmonthly
income
forw
hichthere
isnoreasonable
alternative.”72
Asexam
plesofacceptable“specialcircum
stances,”the
Code
mentions“a
seriousmedicalcondition
oracallororderto
activeduty
inthe
Arm
edForces.”
73
Severalcourtshavesaid
thatanobligation
topay
anondischargeable
studentloancan
bea
“specialcircumstance”
similarto
aseriousm
edicalconditionora
calltom
ilitaryservice. 74
For
69Inre
Know
les,501B
.R.409,412
(Bankr.D
.Kan.2013)(above-m
edianchapter13
debtor’sdirectpaym
entofongoingcontractualpaym
entstostudentloan
creditorusingfundsnotrequired
byC
odeto
becom
mitted
toplan
didnotconstitute
unfairdiscrimination
under§1322(b)(1));
Inre
King,460
B.R
.708(B
ankr.N.D
.Tex.2011)(notunfairdiscrimination
topay
studentloandirectly
tocreditorusing
income
inexcessofthe
amountm
andatedby
theprojected
disposableincom
ecalculation);
Inre
Abaunza,452
B.R
.866(B
ankr.S.D.Fla.2011)
(usingdiscretionary
income,above-m
ediandebtorm
aypay
studentloandebtin
fulloverthesixty
monthsofthe
plan,w
hileotherunsecured
creditorswillreceive
adividend
oflessthan1%
);In
reSharp,415
B.R
.803
(2009)(following
Oraw
sky,above-median-incom
echapter13
debtor’sdiscretionarypaym
entstostudentloan
creditorsnotunfairlydiscrim
inatory).Butsee
Inre
Stull,489B
.R.217
(Bankr.D
.Kan.2013)(allow
ingabove-m
edianincom
echapter13
debtortopay
studentloanin
fullwith
discretionaryincom
e,butholding§
1322(b)(10)precludespaymentofintereston
claimunderplan).7011
U.S.C
.§707(b)(2)(A
)(ii)(I)(“othernecessaryexpenses”
“shallnotincludeany
payments
fordebts”);seealso
Inre
Thompson,457
B.R
.872(B
ankr.M.D
.Fla.2011)(studentloandebt
notanallow
edpriority
expenseundersection
707(b)(2)(A)(ii),(iv),forO
fficialForm22A
).7111
U.S.C
.§707(b)(2)(B
)(i);seeN
ationalConsum
erLawC
enter,Consum
erBankruptcy
Lawand
Practice§
13.4.6.2(10
thed.2012and
Supp.).7211
U.S.C
.§707(b)(2)(B
)(i).73Id.74In
reH
owell,477
B.R
.314,316/-/17(B
ankr.W.D
.N.Y
.2012)(debtorrebuttedpresum
ptionof
abusew
henm
agnitudeofstudentloan
debtwould
allowonly
nominalpaym
entstoother
unsecuredcreditors);In
reEdw
ards,2012W
L3042233
(Bankr.D
.Ala.July
25,2012)(agreeingthatin
some
casesstudentloanpaym
entsmay
constitutespecialcircum
stances,butnotinthis
example,in
Inre
Delbecq,the
meanstestleftthe
debtorwith
$304in
disposablem
onthlyincom
e,andshe
faceda
trustee’smotion
todism
issassertingthe
presumption
ofabuse.In
response,thedebtorargued
thathermonthly
studentloanpaym
entof$350w
asa“special
circumstance”
thatrebuttedthe
presumption. 75
Ifherdisposableincom
ew
asreducedby
theam
ountofherstudentloanpaym
ents,shew
ouldhave
nodisposable
income
underthem
eanstestform
ula.The
courtagreedw
iththe
debtoranddenied
thetrustee’sm
otionto
dismiss. 76
Inholding
thattheobligation
topay
thestudentloansw
asa“specialcircum
stance”under
section707(b)(2)(B
)(i),thecourtin
Delbecq
lookedto
thelegislative
historyofthe
meanstest.
Congressintended
thatthem
eanstestbarfromchapter7
thosedebtorsw
hohad
am
eaningfulability
topay
theirdebts.A
ccordingto
thecourt,forcing
thedebtorinto
chapter13w
oulddo
nothingto
furtherthisintent.B
ecauseseparate
classificationofstudentloan
debtswasperm
ittedin
achapter13
planin
thedistrict,the
non-student-loancreditorsw
ouldreceive
nothingunder
anyplan
thedebtorw
aslikelyto
propose. 77The
studentloancreditorw
ouldreceive
alldisbursem
entsunderherplan.The
studentloandebtw
aspresumed
tobe
nondischargeable,sothe
debtorhadno
alternativebutto
payit.
Thus,thedebtordid
nothaveany
meaningfulability
torepay
hernon-student-loandebtseitherinside
oroutsideofbankruptcy.
Thisamounted
tospecialcircum
stancesthatplacedthe
debtorinclearneed
ofchapter7reliefand
requiredadjustm
entstoherincom
eand
expensesbasedupon
thestudentloan
debt.The
obligationto
make
significantstudentloanpaym
entsmay
alsobe
abasisforopposing
am
otionto
dismissa
chapter7case
underaclaim
ofgeneralabuseofchapter7
orlackofbad
faith. 78
Asim
ilarissueinvolving
studentloansandthe
debtor’sprojecteddisposable
income
hasarisen
inchapter13
cases.Ifthe
studentloanpaym
entscanbe
excludedfrom
projecteddisposable
income
asa“specialcircum
stance,”the
paymentofthe
regularmonthly
installments
onthe
long-termdebtdirectly
tothe
creditorwould
beappropriate.
Thisshouldbe
allowed,
becausethe
same
“specialcircumstances”
standardofsection
707(b)(2)(B)(i)thatreduces
currentmonthly
income
underthem
eanstestforchapter7appliesto
adjustmentsto
disposableincom
ein
chapter13.
casebecause
debtorsincurredotherhigh
unnecessaryexpenses);In
reSanders,454
B.R
.855(B
ankr.M.D
.Ala.2011)(debtorsw
ho“eitherdirectly
oronguarantorbasis”
were
responsiblefortheirson’sstudentloan
couldclaim
theexpense
asa“specialcircum
stance”undersection
707(b)(2)(B));In
reM
artin,371B
.R.347
(Bankr.C
.D.Ill.2007);In
reD
elbecq,368B
.R.754
(Bankr.S.D
.Ind.2007);Inre
Ham
an,366B
.R.307
(Bankr.D
.Del.2007)(debtor’sobligation
topay
asco-signoronson’sstudentloan
is“specialcircumstance”);In
reTem
pleton,365B
.R.
213(B
ankr.W.D
.Okla.2007);see
Anthony
P.Cali,The
“SpecialCircum
stance”ofStudent
LoanD
ebtUnderthe
BankruptcyAbuse
Preventionand
Consum
erProtectionActof2005,52
Ariz.L.R
ev.473(Sum
mer2010)(review
ingdecisionsand
policiesrelatedto
issueand
generallysupporting
treatmentofstudentloanspaym
entsas“specialcircumstance”).
75Inre
Delbecq,368
B.R
.754(B
ankr.S.D.Ind.2007).
76Id.77See
§10.9.1,supra
(discussingchapter13
planclassification
issuesrelatedto
studentloans).7811
U.S.C
.§707(b)(1)and
(3);seeIn
reThurston,2008
WL
3414138(B
ankr.N.D
.Ohio
Aug.
8,2008).
Atleastone
courthasagreedw
iththisanalysisin
thecontextofchapter13. 79
Findingthatm
onthlypaym
entsof$450tow
arda
nondischargeablestudentloan
were
“specialcircum
stances,”the
courtinIn
reK
nightheldthata
downw
ardadjustm
entofthedebtor’s
projecteddisposable
income
inthe
fullamountofhisscheduled
studentloanpaym
entswas
appropriate.The
courtfoundthatthe
debtorhadno
reasonablealternative
topaym
entofhisstudentloans.
Therew
ouldbe
adem
onstrableeconom
icunfairnessto
thedebtorifcom
pletionofa
chapter13plan
lefthimin
defaultonhisstudentloansand
subjecttogarnishm
entortaxoffsets. 80
Thiswould
beinconsistentw
iththe
intentofBA
PCPA
toencourage
debtorstocom
pletechapter13
repaymentplans.
Asan
alternativebasisforitsdecision,the
courtinIn
reK
nightfoundthatthe
debtorwasperm
ittedto
make
paymentson
thestudentloansundersection
1322(b)(5).
Some
courtshaverejected
theview
thattheobligation
topay
anondischargeable
studentloan
debtis,perse,a“specialcircum
stance”thatjustifiesadditionaldeductionsfrom
monthly
income
underthem
eanstest. 81A
perserule
thatanyspecific
debtwithin
ageneralcategory
ofexpendituresw
illalwaysqualify
forthe“specialcircum
stances”deduction
isnotatenable
position,anditisnotone
thatanycourtshave
endorsed.U
nderafairreading
ofthestatute,the
debtormustm
akesom
eparticularized
showing
that,inhisorhercase,there
isnoalternative
topaym
entofthestudentloan
debt. 82H
owever,in
rejectingdebtors’argum
entsthatstudentloanpaym
entswere
“specialcircumstances,”
some
recentdecisionsendorseda
lineofreasoning
that
79Inre
Knight,370
B.R
.429(B
ankr.N.D
.Ga.2007).
80Id.at437.See
generallyIn
reH
owell,477
B.R
.314,317(B
ankr.W.D
.N.Y
.2012)(discussing
thenegative
impactofchapter13
ondebtor’sstudentloan
debtasfactorundersection
707(b)(2)(B)(i)rebutting
claimofabuse
ofchapter7).81In
reM
artin,505B
.R.517,522
(Bankr.S.D
.Iowa
2014)(agreeingw
ithline
ofcasesthatholdthatstudentloansare
nottypicallyspecialcircum
stance);In
reB
rown,500
B.R
.255,263(B
ankr.S.D.G
a.2013)(payingstudentloan
debtnot“specialcircumstance”
unlessdebtorcanshow
incurringloansw
asdueto
jobloss,required
tom
aintainjob,orsim
ilarnecessity);In
reM
aura,491B
.R.493,512/-/13
(Bankr.E.D
.Mich.2013)(incurring
studentloandebtis
voluntary,foreseeable,andnotunusual);In
reC
ampbell,2012
WL
162287(B
ankr.E.D.K
y.Jan.18,2012)(rejecting
specialcircumstancestreatm
entwhen
debtorpresentedno
evidencebeyond
nondischargeablenature
ofstudentloandebt);In
reThom
pson,457B
.R.872
(Bankr.
M.D
.Fla.2011)(debtorsdidnotestablish
studentloanexpense
wasnecessary
andcould
notbedeferred
underlong-termpaym
entoptions);Inre
Johnson,446B
.R.921
(Bankr.E.D
.Wis.
2011)(studentloantaken
outvoluntarilyforcareerenhancem
entcanneversupport“special
circumstances”
treatment,butdebtorm
ayclassify
studentloanpaym
entsseparatelyunder
section1322(b)(5)to
maintain
payments);In
reH
armon,446
B.R
.721(B
ankr.E.D.Pa.2011)
(proceedingunderchapter13
would
notimpose
undulysevere
consequencesupondebtor);In
reC
onlee,435B
.R.490
(Bankr.N
.D.O
hio2010);In
reSiler,426
B.R
.167(B
ankr.W.D
.N.C
.2010);In
reC
arillo,421B
.R.540
(Bankr.D
.Ariz.2009);In
rePageau,383
B.R
.221(B
ankr.D
.N.H
.2008);Inre
Lightsey,374B
.R.377,382
n.3(B
ankr.S.D.G
a.2007).82See
Inre
Cham
pagne,389B
.R.191
(Bankr.D
.Kan.2008)(em
phasizingfact-intensive
natureofspecialcircum
stancesdetermination;rejecting
viewthatnondischargeable
studentloanobligation
ispersea
specialcircumstance
butalsorejecting
viewthatstudentloan
debtburdencan
neversatisfythisrequirem
ent).
deviatesfromthe
statutorylanguage
aswidely
asdoestheview
thatstudentloansshouldalw
aysbe
treatedasa
“specialcircumstances.”
Thesecourtsadopted
theposition
that“specialcircum
stances”m
ustbethe
resultofsome
involuntaryhardship
thatbefellthedebtor. 83
According
tothese
courts,studentloansarea
routineobligation
thatindividualstakeon
voluntarily.U
nderthisview,paym
entstoward
anondischargeable
studentloanw
ouldalm
ostneverbe
aspecialcircum
stancereducing
disposableincom
eundersection
707(b)(2)(B).
Thedecisionsthatgive
substantialweightto
thereasonsw
hythe
debtorincurreda
particulardebt,suchasa
studentloan,ignorethe
relevantstatutorylanguage. 84
By
itsterms,the
statuterequiresonly
thatthedebtordem
onstratethatcertain
circumstancesare
“special”to
theextentthatthey
requireadditionalexpendituresfrom
currentmonthly
income
andthere
isnoreasonable
alternativeto
paymentforthese
expenditures.There
isnothingin
thestatutory
languagesuggesting
thatanythingaboutthe
pastcircumstancesw
hichcreated
theobligation
isrelevant.
Theonly
criterionisthatthere
presentlybe
noreasonable
alternativeto
theexpenditure. 85
Thestandard
shouldbe
metw
henthere
isnothingw
ithinthe
debtor’spowerto
reduceorotherw
iseavoid
theadditionalexpense
ofthestudentloan. 86
Them
eanstestingsystem
wasintended
tobe
aprocessto
directdebtorswith
some
trulydiscretionary
income
oranextravagantlifestyle
intosom
eform
ofdebtrepayment.
Thelack
ofalternativesforrepayment
ofstudentloandebtshould
focusonthe
debtors’resourcesandexpensesand
notonw
hetherstudentloansare
acom
mon
or“voluntary”form
ofdebt. 87
i.O
bjectionstoC
laims
Eventhough
non-dischargeable,studentloansaresubjectto
theclaim
sobjection
83Inre
Zahringer(Bankr.E.D
.Wis.M
ay30,2008);In
rePageau,383
B.R
.221(B
ankr.D.N
.H.
2008)(therem
ustbe“specialcircum
stances”in
thereasonsthatled
debtortoincureducation
loan).8411
U.S.C
.§707(b)(2)(B
).85See
Inre
Ham
an,366B
.R.307,313/-/14
(Bankr.D
.Del.2007)(rejecting
viewthat
circumstancesm
ustresultfromeventsoutside
debtor’scontrol).86In
reH
amm
ock,436B
.R.343
(Bankr.E.D
.N.C
.2010)(needforeducation
credentialsforjobadvancem
entnotsufficienttoshow
“specialcircumstances”
andlack
ofreasonablealternatives);
Inre
Templeton,365
B.R
.213(B
ankr.W.D
.Okla.2007);see
alsoIn
reK
night,370B
R.429,
439/-/40(B
ankr.N.D
.Ga.2007)(a
“reasonablealternative”
isnottopay
am
inisculepercentage
tostudentloan
creditoralongw
ithallgeneralunsecured
creditorsinchapter13
planand
havedebtorow
em
oreon
studentloanafterbankruptcy
thanbefore).
ButseeIn
rePageau,383
B.R
.221
(Bankr.D
.N.H
.2008)(indistrictsthatallow
separateclassification
ofstudentloansinchapter13
plans,treatmentofstudentloan
debtinthism
annerunderaplan
isreasonablealternative
fordealingw
ithexpense,precluding
findingofspecialcircum
stancesforchapter7debtor);In
reLightsey,374
B.R
.377,382n.3
(Bankr.S.D
.Ga.2007)(sam
e).87In
reSanders,454
B.R
.855(B
ankr.M.D
.Ala.2011)(studentloan
repaymentis“special
circumstance”
rebuttingpresum
ptionofabuse;allow
ingindebtednessto
increaseunderlong-
termpaym
entprogramnota
reasonablealternative);In
reD
elbecq,368B
.R.754
(Bankr.S.D
.Ind.2007).
process. 88Forexam
ple,while
federallyguaranteed
studentloansareneverbarred
bya
statuteof
limitations,private
studentloansare,likelybased
onthe
debtor’sstateofresidence.
Partiesattem
ptingto
collectastudentloan
mustshow
thattheyare
theproperparty. 89A
dditionally,studentloansm
aybe
subjecttothe
protectionsunderotherlaws,including
theFD
CPA
,stateunfaircollection
laws,
etc.,w
hichraised
defensivelyin
objectingto
claimseven
beyondthose
lawsstatutesoflim
itations.
Proofsofclaimcan
alsobe
scrutinizedto
determine
iftheobligationsm
eetthecriteria
tobe
non-dischargeable“studentloans.”
90Theclaim
shouldevidence
eitherthattheobligations
was“an
educationalbenefitoverpaymentorloan
made,insured
orguaranteedby
agovernm
entalunit,orm
adeunderany
programfunded
inw
holeorin
partbya
governmentalunitornonprofit
institution”,“anobligation
torepay
fundsreceivedasan
educationalbenefit,scholarshipor
stipend” 91,or“qualifiededucation
loan,asdefinedin
section221(d)(1)ofthe
InternalRevenue
Code
of1986,incurredby
adebtorw
hoisan
individual.”92
8.Preferences
Garnishm
entsforstudentloanswithin
in90-daysoffiling
ofadebtor’sbankruptcy
canbe
consideredpreferentialtransfers. 93
Thereisno
exceptionforavoidance
oftransfersfornondishargeable
debts,suchasstudentloans,and,because
suchgarnishm
entsarenotvoluntary,
achapter13
debtorcanboth
recoverthegarnished
amountsand,assum
ingavailable
exemptions,
retainthose
funds. 94Any
recoveryw
ouldstillbe
non-dischargeablein
thelong
run,butthedebtorm
aybenefitm
orefrom
theim
mediate
returnofgarnished
funds.
88See
e.g.,11U
.S.C.§502(b)and
FederalRule
ofBankruptcy
Procedure3007.
Seealso,H
annv.Educ.C
reditMgm
t.Corp.(In
reH
ann),476B
.R.344
(B.A
.P.1stCir.2012)(afterthorough
reviewofclaim
objectionby
thebankruptcy
court,thebalance
onthe
studentloanclaim
was
determined
tobe
zero.)89
Seee.g.,D
udleyv.S.V
a.Univ.(In
reD
udley),502B
.R.259
(Bankr.W
.D.V
a.2013)(U
niversityw
asrequiredto
showthatitw
asentitledto
enforcethe
noteagainstthe
debtor.)90
11U
.S.C.§523(a)(8).
SeeR
umerv.A
m.Educ.Servs.(In
reR
umer),469
B.R
.553,561(B
ankr.M.D
.Pa.2012)(casesinterpreting§
523(a)(8)haveheld
thattheinitialburden
isonthe
lendertoestablish
theexistence
ofthedebtand
todem
onstratethatthe
debtisincludedin
oneofthe
fourcategoriesenumerated
in§
523(a)(8)).91
Seee.g.,Inst.of
ImaginalStudies
v.Christoff
(Inre
Christoff),510
B.R
.876,876(B
ankr.N
.D.C
al.2014)(tuitioncredits
which
achapter7
debtorreceivedfrom
aprivate
universitythat
waslicensed
underCalifornia'sPrivate
PostsecondaryEducation
Actof2009
were
dischargeablein
bankruptcyunder11
U.S.C
.S.§523(a)(8)because
theydid
notinvolvea
third-partyloan
oranexchange
offunds.)92
26U
.S.C.§
221(d)(1).93
11U
.S.C.§
541.94
11U
.S.C.§522(g),(h)and
(i).
BuchananProvisions
•The
Debtorisnotseeking
nordoesthisPlanprovide
foranydischarge,in
whole
orinpart,ofher
studentloanobligations.
•The
Debtor
shallbe
allowed
toseek
enrollment
inany
applicableincom
e-drivenrepaym
ent(“ID
R”)
planw
iththe
U.
S.D
epartment
ofEducation
and/orother
studentloan
servicers,guarantors,etc.(C
ollectivelyreferred
tohereafter
as“Ed”),w
ithoutdisqualificationdue
toher
bankruptcy.
•Ed
shallnotberequired
toallow
enrollmentin
anyID
Runlessthe
Debtorotherw
isequalifies
forsuch
plan.
•The
Debtorm
ay,ifnecessaryand
desired,seeka
consolidationofherstudentloans
byseparate
motion
andsubjectto
subsequentcourtorder.
•U
pondeterm
inationby
Edof
herqualification
forenrollm
entinan
IDR
andcalculation
ofany
paymentrequired
undersuchby
theD
ebtor,theD
ebtorshall,within
30days,notify
theC
hapter13
Trusteeof
theam
ountof
suchpaym
ent.A
tsuch
time,
theTrustee
orthe
Debtor
may,
ifnecessary,
filea
Motion
toM
odifythe
Chapter
13Plan
toallow
suchdirect
payment
ofthe
studentloan(s)and
adjustthepaym
enttoother
generalunsecuredclaim
sas
necessaryto
avoidany
unfairdiscrimination.
•The
Debtor
shallre-enroll
inthe
applicableID
Rannually
oras
otherwise
requiredand
shall,w
ithin30
daysfollow
inga
determination
ofherupdatedpaym
ent,notifythe
Chapter13
Trusteeof
suchpaym
ent.At
suchtim
e,theTrustee
orthe
Debtor
may,if
necessary,filea
Motion
toM
odifythe
Chapter
13plan
toallow
suchdirectpaym
entofthe
studentloan(s)and
adjustthepaym
enttoothergeneralunsecured
claimsasnecessary
toavoid
anyunfairdiscrim
ination.
•D
uringthe
pendencyofany
applicationby
theD
ebtortoconsolidate
herstudentloans,toenroll
inan
IDR
,directpaym
entof
herstudent
loansunder
anID
R,or
duringthe
pendencyof
anydefaultin
payments
ofthe
studentloansunder
anID
R,itshallnotbe
aviolation
ofthe
stayor
otherState
orFederal
Laws
forEd
tosend
theD
ebtornorm
alm
onthlystatem
entsregarding
payments
dueand
anyother
comm
unicationsincluding,
without
limitation,
noticesof
latepaym
entsor
delinquency.Thesecom
munications
may
expresslyinclude
telephonecalls
ande-
mails.
•In
theeventofany
directpaymentsthatare
more
than30
daysdelinquent,theD
ebtorshallnotifyher
attorney,w
how
illin
turnnotify
theC
hapter13
Trustee,and
suchparties
will
takeappropriate
actionto
rectifythe
delinquency.
•The
Debtor’s
attorneym
ayseek
additionalcom
pensationby
separateapplications
andcourt
orderforservicesprovidedin
connectionw
iththe
enrollmentand
performance
underanID
R.
CO
NT
RA
CT
FOR
AD
DIT
ION
AL
STU
DE
NT
LO
AN
ASSIST
AN
CE
PrintNam
e:
SocialSecurity#:
FSAPIN
:
ScopeofC
ontract
Thiscontractis
between
(Hereinafter
referredto
as“C
LIENT”)and
TheLaw
OfficesofJohn
T.Orcutt,P.C
.("us"or"we").
CLIEN
Thas
retainedthe
LawO
fficesofJohn
T.Orcutt,P.C
.toassistw
ithC
LIENT’S
studentloan
situationin
conjunctionw
ithC
LIENT’S
Chapter13
plan/Chapter7
case.Specifically,the
LawO
fficesofJohnT.O
rcutt,P.C.w
ill:
1.R
eviewall
documents
andhistory
ofloans
andthen
giveC
LIENT
aw
rittenreport
containingan
analysisofyoursituationw
ithavailable
options;2.
Conducta
phonecallafterC
LIENT
hasreview
edthe
analysisto
discussthe
optionsand
determine
which
optionC
LIENT
chooses;and3.
Implem
enttheoption
ofCLIEN
T’Schoice
basedupon
thisdiscussion,including
seekingallow
anceofthatoption
andpaym
entofourfeesthrough
CLIEN
T’SC
hapter13plan/in
conjunctionw
ithC
LIENT’S
Chapter7
case.
CLIEN
Tagreesto
providethe
following
documents:
1.A
signedand
notarizedFederalStudentA
idPin
Num
berAuthorization.
2.A
signedand
notarizedLim
itedStudentLoan
PowerofA
ttorney.3.
CLIEN
T’Scom
pleteFederal
StudentLoan
historyreport,w
hichcan
beobtained
fromw
ww
.NSLD
S.ed.gov4.
Any
documents,
promissory
notes,collection
lettersand
phonecall
logsof
anycom
municationsC
LIENT
hashadw
ithany
StudentLoanD
ebtcollectors.5.
An
itemized
list,along
with
statements,foreach
andevery
privatestudentloan
CLIEN
Tow
es.6.
Any
andall
otherdocum
entsC
LIENT
hasrelated
toC
LIENT’S
studentloans.
Ifa
checklistwasprovided,C
LIENT
willprovide
allrequestedinform
ation.
CLIEN
Tagrees
thattheLaw
Offices
ofJohnT.O
rcutt,P.C.is
notresponsibleforrepresenting
oradvisingC
LIENT
inotherm
attersthatarenotincluded
inthe
scopeofthiscontract.
Fee
Income
Driven
Repaym
entPlan:[Chapter13]
Thefee
forthisassistance
is$2,000.
Thisis
aflatfee,consisting
of$1,200.00forthe
initialanalysis,adviceand
implem
entationofthe
studentloan
optionand
$200.00for
eachof
thefollow
ingre-certification
duringfour
(4)years
following
thefiling
ofCLIEN
T’SC
hapter13plan.C
LIENT
acknowledges
andagrees
thatsuchservices
willnotbe
provideduntilafterthe
filingofC
LIENT’S
bankruptcy.IfCLIEN
Tchooses
notto
exerciseany
ofthe
studentloan
optionsavailable
orif
noneare
authorizedby
thebankruptcy
court,CLIEN
Tw
illnotowe
anythingforthese
services.The
amountofthis
feealso
includesconsideration
foragreeingto
bepaid
throughC
LIENT’S
Chapter13
planovera
periodoftim
e,acknowledging
thatbyproviding
servicesin
advanceofpaym
entandthe
LawO
fficesof
JohnT.O
rcutt,P.C.bears
therisk
ofdelayed
paymentor
nonpayment.A
ftercom
pletionof
CLIEN
T’SC
hapter13
plan,CLIEN
Tm
ayretain
theLaw
Offices
ofJohn
T.Orcutt,P.C
.tocontinue
toassistw
ithfurtherre-certification,atw
hichtim
ea
newcontactw
illbeentered
into.[C
hapter7]
Thefee
forthis
assistanceis
$2,000.This
isa
flatfee,consisting
ofthe
initialanalysis,advice
andim
plementation
ofthe
studentloan
option.C
LIENT
acknowledges
andagrees
thatsuchservices
willnotbe
provideduntilafterthe
dischargeofC
LIENT’S
bankruptcyand
payment
ofall
fees.IfC
LIENT
choosesnot
toexercise
anyof
thestudent
loanoptions
available,CLIEN
Tw
illnotowe
anythingforthese
services.Afterthe
initialimplem
entationof
CLIEN
T’Sstudentloan
option,CLIEN
Tm
ayretain
theLaw
Offices
ofJohnT.O
rcutt,P.C.to
continueto
assistwith
furtherre-certification,atwhich
time
anew
contactwillbe
enteredinto.
TotalPerm
anentD
isabilityor
Other
Adm
inistrativeD
ischarge:[C
hapter13]
Thefee
forthis
assistanceis
$2,000.This
isa
flatfee,
consistingof
theinitial
analysis,advice
andim
plementation
ofthe
studentloanoption
andre-certification
duringthree
(3)years
following
thefiling
ofCLIEN
T’SC
hapter13plan.
CLIEN
Tacknow
ledgesand
agreesthatsuch
servicesw
illnotbeprovided
untilafterthefiling
ofCLIEN
T’Sbankruptcy.IfC
LIENT
choosesnotto
exerciseany
ofthe
studentloanoptions
availableor
ifnone
areauthorized
bythe
bankruptcycourt,C
LIENT
willnotow
eanything
forthese
services.The
amountof
thisfee
alsoincludes
considerationforagreeing
tobe
paidthrough
CLIEN
T’SC
hapter13plan
overaperiod
oftime,
acknowledging
thatbyproviding
servicesin
advanceofpaym
entandthe
LawO
fficesofJohn
T.O
rcutt,P.C
.bears
therisk
ofdelayed
payment
ornonpaym
ent.A
ftercom
pletionof
CLIEN
T’SC
hapter13
plan,CLIEN
Tm
ayretain
theLaw
Offices
ofJohn
T.Orcutt,P.C
.,ifnecessary,
tocontinue
toassistw
ithfurtherre-certification,atw
hichtim
ea
newcontactw
illbeentered
into.Ifw
efailto
obtaineitheran
administrative
totalpermanentdisability
dischargeor
enrollment
inan
income
drivenrepaym
entplan,
youw
illnot
owe
anythingfor
thisservice.
[Chapter
7]The
feefor
thisassistance
is$2,000.
Thisis
aflat
fee,consistingof
theinitial
analysis,adviceand
implem
entationof
thestudent
loanoption.
CLIEN
Tacknow
ledgesand
agreesthatsuch
servicesw
illnotbeprovided
untilafterthedischarge
ofCLIEN
T’Sbankruptcy
andpaym
entofallfees.CLIEN
Tacknow
ledgesthatthis
feedoes
notincludecom
mencem
entofan
adversaryproceeding
inbankruptcy
toseek
dischargeof
studentloans.If
CLIEN
Tchooses
notto
exerciseany
ofthe
studentloan
optionsavailable,C
LIENT
will
notow
eanything
forthese
services.Afterthe
initialimplem
entationofC
LIENT’S
studentloanoption,C
LIENT
may
retainthe
LawO
fficesofJohnT.O
rcutt,P.C.to
continueto
assistwith
furtherre-certification,atw
hichtim
ea
newcontactw
illbeentered
into.
Cooperation
CLIEN
Tagrees
tocooperate
with
theLaw
Offices
ofJohn
T.O
rcutt,P.C
.so
thatthe
LawO
fficesof
JohnT.O
rcutt,P.C.m
aycarry
outthe
scopeof
thisC
ontract.C
LIENT
will
beresponsible
forthefollow
ing:
1.C
LIENT
muststay
intouch
with
theLaw
Offices
ofJohn
T.Orcutt,P.C
..If
CLIEN
Tm
ovesor
changestelephone
number
ore-m
ailaddress,C
LIENT
will
providethe
newinform
ationas
soonas
possible.Failureby
theC
LIENT
tokeep
theLaw
Offices
ofJohnT.O
rcutt,P.C.inform
edin
writing
ofcurrentaddress,phone
numbers
andem
ailatalltim
esw
illrelievethe
LawO
fficesofJohn
T.Orcutt,P.C
.ofanyresponsibility
causedby
suchfailure,and
attheoption
oftheLaw
Offices
ofJohnT.O
rcutt,P.C.
givethe
LawO
fficesof
JohnT.
Orcutt,
P.C.
theright
tow
ithdrawfrom
representingC
LIENT
regardingthese
studentloanoptions.
2.C
LIENT
must
providethe
LawO
fficesof
JohnT.
Orcutt,
P.C.
with
anyand
allinform
ationnecessary
toadequately
reviewC
LIENT’S
studentloan
situation,this
includescontacting
usin
atim
elym
annerfor
eachannualre-certification
ofC
LIENT’S
studentloanoptions.
3.C
LIENT
mustalw
aystellthecom
pletetruth
indiscussing
studentloans.
Confidences
TheLaw
Offices
ofJohn
T.Orcutt,P.C
.agreesto
keepC
LIENT’S
information
confidential,exceptto
theextentdisclosure
ofchangesinincom
eorstudentloan
paymentsare
requiredby
theD
epartment
ofEducation
orthe
bankruptcycourt.
CLIEN
Tagrees,
however,
thatthe
LawO
fficesof
JohnT.
Orcutt,
P.C.
may
releaselim
itedinform
ation,otherw
iseprivileged
orconfidential,
ifthe
LawO
fficesof
JohnT.
Orcutt,
P.C.
believesthat
therelease
ofthe
information
willbenefitC
LIENT.
Cancellation
Inthe
eventofcancellationofthis
contractbyC
LIENT
ordenialbythe
bankruptcycourtofthe
abovefees,the
LawO
fficesofJohnT.O
rcutt,P.C.w
illberelieved
anyresponsibility
forfurtherassistance
regardingC
LIENT’S
studentloanoptions.
TheLaw
Offices
ofJohn
T.Orcutt,P.C
.willretain
CLIEN
T’Sfile
forfive
(5)yearsfrom
thedate
ofthis
retaineragreem
entatwhich
pointitwillbe
destroyed.TheLaw
Offices
ofJohn
T.O
rcutt,P.C.reserves
therightto
storerecords
electronically.IfC
LIENT
needsa
copyof
anypartofthe
filein
thefuture
thereisa
$75charge.
Disclaim
ers
Initial
You
understandthatw
eare
providinga
uniqueservice.
You
understandthatthe
LawO
fficesof
JohnT.
Orcutt,
P.C.
cannotguarantee
thatany
studentloan
creditorwilloffer,agree
tooraccepta
planthatis
affordableordesirable
bythe
CLIEN
T,thatanyestim
atedstudentloan
repaymentplans
preparedby
theLaw
Offices
ofJohn
T.O
rcutt,P.C
.are
notguaranteed
andm
aybe
completely
erroneousor
deniedby
thecreditor,and
thatthebankruptcy
courtmay
disallowthe
proposedtreatm
entofthestudentloans.
CLIEN
Tacknow
ledgesthat
anystudent
loanoption
obtainedm
ayrequire
apaym
entofadditionalamountsto
otherallowed
unsecuredclaim
sina
Chapter13
case,with
sucham
ountstobe
determined
bythe
bankruptcycourt.
CLIEN
Tunderstands
thatCLIEN
Tcan
educatehim
selforherselfwithouthiring
anattorney
and,subjectto
therequirem
entsof
thebankruptcy
court,develop
CLIEN
T’Sow
nstrategy
form
anagingstudentloan
debt,includingnonpaym
entofstudentloans
duringthe
courseofyourC
hapter13plan,
andavoid
payingthe
LawO
fficesofJohnT.O
rcutt,P.C.any
fees.
Inthe
unlikelyeventofany
disputebetw
eenC
LIENT
andthe
LawO
fficesofJohn
T.Orcutt,P.C
.,them
attershallbesubm
ittedto
bindingarbitration,to
theextentperm
ittedby
law,w
ithfee
disputestothe
North
Carolina
Bar
andother
disputestoa
panelofthreeindependentarbitrators.
CLIEN
T’Ssignature
belowand
initialsabove
arean
acknowledgm
entthat
CLIEN
Tacknow
ledgesallofthe
terms
ofthiscontract.
Ifanypartofthis
agreementis
foundinvalid
orunenforceable,the
balanceofthe
agreementshallbe
enforceable.
Thisisnotacontractforcreditrepairordebtnegotiation.
IfC
LIENT
hasany
questionsor
concernsabout
thiscontract
oryour
expectationsof
ourservices,please
callEdward
C.B
oltzat919-286-1695
todiscussbefore
signingbelow
.
PrintNam
e:
Signature:
Date:
SocialSecurity#: