Archives for March 2016

Can Student Loans Be Discharged?

It’s getting to the point, for many, where the cost of a college education is one of the biggest of life’s expenses, greater even than the cost of a home. Not surprisingly, as many college graduates struggle to find good jobs, many consider bankruptcy as an option to get their finances under control. The key question—can student loan payments be discharged in a federal bankruptcy filing?

Though many people don’t know it, there are limited circumstances where student loan payments can be wiped out under the bankruptcy law. Under what is known as the Brunner test (so named because of the U.S. Supreme Court case that laid down the principles for discharge of a student loan), you can discharge student loan obligations if you can demonstrate that repayment would cause you an “undue hardship.”

Under Brunner, a debtor can eliminate student loan debt by showing all of the following:

  • The debtor does not have sufficient income to maintain a minimal standard of living for himself/herself and dependents
  • The debtor has no reasonable prospect that the current financial situation is likely to change
  • The debtor has made a good faith attempt to pay off student loan debt

It’s important to understand that, without evidence to the contrary, most courts will presume that a debtor’s income will increase over time and that a debtor will be able to attain a minimal standard of living. Accordingly, any debtor seeking discharge of a student loan payment will need to affirmatively demonstrate that his or her situation is not likely to change. A debtor may introduce the following types of evidence to support that claim:

  • A mental or physical disability
  • Lack of education or training
  • Poor quality of education
  • Lack of job skills
  • Age of debtor

Exploring the options for income based repayment or discharge of student loans through various federal programs is a good idea and also a necessary first step. You can find information about what types of loans you have at this site: https://www.nslds.ed.gov/nslds/nslds_SA/. Information about federal student loan forgiveness and cancellation can be found here: http://studentaid.ed.gov/repay-loans/forgiveness-cancellation

If you resort to a bankruptcy, discharging student loans will require that you file a “bankruptcy lawsuit” in the bankruptcy seeking a judgment of dischargeability.  Achieving success is possible, but difficult at present. Hopefully courts or Congress will find a way to ease the path to dischargeability.

Contact Neuner & Ventura, LLP

We understand the stress, anxiety and confusion that can be associated with a potential bankruptcy filing. We offer a free initial consultation to every client. For an appointment, call Neuner & Ventura at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

Representing Clients Across South Jersey

The Different Grounds for Non-Dischargeability of Debts in a Bankruptcy

The general goal in a bankruptcy proceeding, is, as much as possible, to discharge debts, so that you no longer have a legal obligation to repay them.

Some debts, such as child support, most taxes, student loans, or alimony are automatically non-dischargeable. This means the creditor does not have to do anything to avoid discharge of their debt. Other debts, however, can get discharged unless the creditor disputes the discharge their debt by filing a Complaint for Non-Dischargeability which starts what is known as an “adversary proceeding” (a bankruptcy-specific term for a lawsuit filed inside a bankruptcy case). As a general rule, such a Complaint must be filed within 60 days of the first date scheduled for meeting of creditors in your bankruptcy case.

The Types of Non-Dischargeability Actions that May Be Filed

There are a number of grounds under which a creditor could file for non-dischargeability of debt:

  • You obtained the debt through false or fraudulent pretenses, such as misrepresenting your income or other debt at the time you applied for credit
  • You bought luxury items in excess of the amount allowed under the bankruptcy laws within 90 days of the filing
  • You took out cash advances in excess of the amount allowed by the bankruptcy laws within 70 days of the bankruptcy filing
  • You used dischargeable debt to pay a non-dischargeable obligation—For example, if you use a credit card to pay for child support or taxes, you will likely not be able to discharge that credit card debt.

As a general rule, creditors tend to file objections only with respect to the debt owed them. However, if there is evidence that you have perpetrated a fraud on the bankruptcy system by hiding assets or income, or by transferring money or assets to family or friends, a creditor may ask the bankruptcy court to disallow the discharge of all your debts..

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we provide a free initial consultation to every client. To set up a meeting, call Neuner & Ventura at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey

Debts for Willful and Malicious Injury

Our bankruptcy laws were enacted to provide debtors with the opportunity for a fresh start. But what if the debts you incurred were the result of intentional acts of misbehavior, even criminal acts? What if you assaulted someone, or if you were grossly negligent and caused serious injury to another person? Should you be able to rid yourself of that obligation by filing for bankruptcy protection?

From a long time, certain debts, for “willful and malicious injury,” have not been eligible for discharge. For almost the entire 20th century (from 1904 to 1998), the “willful and malicious” exception was liberally applied. If it could be shown that the act or behavior was intentional, the debtor could not discharge the obligation.

In 1998, though, the U.S. Supreme Court clarified what was malicious or willful. In Kawaahuau v. Geiger, the debtor was a doctor who was found liable for malpractice and filed for bankruptcy protection because he had no malpractice insurance. The question was whether his intentionally or recklessly not carrying such insurance, leading to an inability to collect for his medical negligence made the malpractice judgment non dischargeable. The Supreme Court said no: “nondischargeability takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury”. Other courts, including the Third Circuit Court of Appeals have said that an act done intentionally which is substantially certain to cause injury, and for which there is no justification or excuse will be treated as willful and malicious. In other words, an intent to cause harm can be inferred and proven form such circumstances.

The “willful and malicious” exception does not apply to mere carelessness. But intentional torts (eg assault or battery, theft) or some act that is illegal will most likely fall within it.

This is something you should discuss with a qualified bankruptcy attorney.

Contact Neuner & Ventura, LLP

We understand the stress, anxiety and confusion that can be associated with a potential bankruptcy filing. We offer a free initial consultation to every client. For an appointment, call Neuner & Ventura at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey

Debts for Embezzlement and Violations of Fiduciary Duty

Though many unsecured debts may be discharged in a federal bankruptcy proceeding, some obligations, such as child support, student loans and certain tax debts, are difficult or impossible to discharge. Debts brought about by embezzlement or breach of fiduciary duty are also often among those that cannot be discharged. A recent opinion by the U.S. Supreme Court has provided some clarity as to when violation of fiduciary duty prohibits the discharge of a debt in bankruptcy.

In Bullock v. Bankchampaign, NA, (2013), the Supreme Court justices ruled that, for breach of fiduciary duty to prevent the discharge of debt, it must be shown that the debtor must have either known that his or her behavior was a violation of a fiduciary duty, or must have acted with gross recklessness as to whether or not the behavior was improper.

In the Bullock case, the party who sought to discharge the debt was the trustee of a trust created by his father. Over a period of years, he borrowed money against an insurance policy in the trust, using it for his own benefit. However, he always repaid the loans with interest. Nonetheless, he was sued by his brothers, who were beneficiaries of the trust, and was found liable for self-dealing. The jury rendered a verdict in favor of his brothers, and granted them a monetary award. The debtor could not pay the judgment and filed for bankruptcy protection.

In its ruling, the Supreme Court of the United States concluded that the debtor had been held to the wrong standard—that breach of fiduciary duty requires a knowledge of or reckless disregard for whether the loans were a breach of fiduciary duty. They found no evidence that the debtor had either.

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we know that the bankruptcy process can be intimidating and confusing. We offer a free initial consultation to every client. For an appointment, call our office at 856-596-2828 or send us an e-mail . We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey

The hidden hazards in failing to list every possible debt or claim in a bankruptcy- you might not be protected!

Recently I was confronted with a question as follows: This gentleman had a small business and filed personal bankruptcy. He neglected to list one of his disgrunteled business customers. The bankruptcy was concluded and he got a discharge.  A year later the customer sued him in state court. He claimed the bankruptcy discharge prevented his being sued but the state court judge had a trial anyway and hit him with treble damages for a violation of the Consumer Fraud Act. He is appealing, without a lawyer.

Here was my answer:

“There are several aspects of this. First, in a no asset case, the consequence of not listing a creditor whose debt arose before the bankruptcy filing is that the debt is still discharged, UNLESS the debt is one that arises from fraud or false pretenses, embezzlement, larcenty, or breach of fiduciary duty, or wilful and malicious intentional injury to another. See Third Circuit decision,  Judd v. Wolfe, 78 F.3d 110 (3d Cir.1996).

“However, the other consequence is that  ithe non listed creditor is never given a deadline to file an adversary proceeding to determine whether the debt was non-dischargeable. Since treble damages were awarded it sounds like the judgment in state court was based on the Consumer Fraud Act. If there was proof of actual fraud (and not just a violation of certain rules and regulations), AND had you listed the creditor in your bankruptcy,  her  claim would have been discharged unless she filed suit in the bankruptcy court to determine the issue within a short specified time. Since that did not happen, the state court could determine if the debt was dischargeable and finding a consumer fraud violation, determine it was not, IF there was actual fraud.  You need to consult with a qualified bankruptcy lawyer right away about this. You need to address this in your appeal.”

Poor guy. All this could have been avoided had he or his attorney been more careful. I always tell clients to list EVERYONE who MIGHT have a possible claim against you. If the client is a business owner, we list every business debt, even if the client thinks she is not personally liable.

Closing the First Meeting of Creditors- it is more important than you think

For anyone in bankruptcy the First Meeting is important. It is where the Trustee places the debtors under oath and asks questions to verify their bankruptcy disclosures, and sometimes to pursue a further investigation. What many people do not realize is that closing that  hearing is just as important. For the most part, the trustee has the discretion to keep the hearing open as long as he or she needs to continue investigating, but there are limits and procedures that must be followed.

Closing the hearing is important because it starts the clock running on the time for the trustee or creditors to object to a debtor’s claim of exemptions. One of the important protections available to individuals in bankruptcy is their right to claim certain types and amounts of property as “exempt”. The exemptions define what property the debtor gets to keep free of claims of most creditors. These exemptions become unchallengeable 30 days after the First Meeting of Creditors is closed, unless there is a written agreement or court order otherwise. F.R.Bankr.P. 4003

So establishing when the hearing is closed is very important. There was a time when trustees had the ability to keep the hearing open for an indefinite time,  simply by announcing that the hearing was being kept open without setting a new date. This left the debtor in limbo. Several courts then held that trustees could not keep the hearing open for an unreasonably long time. In December 2011, bankruptcy rule 2003(e) was amended to require that the notice of adjournment at the hearing include a specified date and time for the hearing. It also required the prompt court filing of a statement specifying the date and time to which the meeting is adjourned. .

So at the First Meeting of Creditors, it is important to ask the Trustee to advise on the record whether the hearing is closed, and if not when the new hearing date will be. Insist that the rule be complied with.

Leaving home? A bankruptcy discharge may not protect you from association dues or liability claims

We see many people who file bankruptcy but decide to move out of a home they cannot afford. As I have said elsewhere, this is not always as simple as it looks and there are traps that even a bankruptcy discharge will not protect you from.

A bankruptcy discharge only discharges those debts that arose before the bankruptcy filing. But consider this scenario. Homeowner H files a bankruptcy then moves out. The home is in foreclosure but it takes another year after the bankruptcy was filed before a Sheriff Sale. Until then, H still owns the home. The home is subject to a condominium or common area association (also called a homeowners association). While the bankrutpcy will discharge debts owed such an association as of the date the bankruptcy is filed, all the association dues, fees or assessments that arise after that filing until H is no longer the owner of record (ie until the Sheriff Sale) are still his obligation. And those “post-petition” debts are not discharged. H will get sued by the association. Any unpaid dues or fees incurred after the bankruptcy can be collected.

Another nasty surprise can arise from lack of insurance. We always tell homeowners to stay in the home even after a bankruptcy, as close to the date they have to move out as possible. Why? Because most homeowners insurance policies have clauses that can result in no coverage if the home is vacant for more than a specific period of time or if the homeowner does not notify the insurance company that the home is vacant (When they get this notice, a cancellation notice usually follows). Vacant properties can be insured, but such insurance is very expensive.

Why is this so important? Consider what would happen if the vacant home catches fire after H has moved out and when he has no insurance. All the neighboring homeowners whose homes were damaged will sue H. H did not discharge these claims in bankruptcy because they did not exist when the bankruptcy was filed. Without insurance H has to pay a lawyer to defend himself, and pay any verdict. Bad news!

Many people tell me that they are covered because the mortgage lender got insurance coverage. If this is not the normal homeowners policy, but instead is “force placed” insurance, it only covers loss of the property and is there to insure the lender gets paid if its collateral is destroyed or damaged. Such policies have no protection for the homeowner.

These are all examples how it pays to sweat the details and get the right advice. For those who live or work in New Jersey or Eastern Pennsylvania, Neuner and Ventura LLP is able to help. For more on related subjects, check out our website and blog.

Chapter 13 trap for the unwary: not listing a creditor in time could mean you still have that debt to pay when the case is over!

In every bankruptcy, a debtor is required to certify that all creditors have been listed. We always caution our clients to include everyone to whom they MIGHT owe money. That way everyone who could sue them to collect a debt gets notice of the bankruptcy and there is no question that all dischargeable debts in fact do get discharged.

All too often, after filing new potential creditors need to be added. But waiting too long to do this can be a serious mistake.

Not listing a creditor risks that later on, that creditor will pursue lawsuits or collection efforts. In the Third Circuit (where New Jersey and Pennsylvania are located), the typical “no asset” Chapter 7 case (where there is nothing distributed to creditors) results in a discharge of all debts that could have been listed and discharged.

But in Chapter 13 cases, it is not so easy. First, any debt not listed will not be discharged. Second, and potentially worse, not listing everyone accurately at the outset could mean that the omitted creditors cannot file a claim in the Chapter 13 case. This means the debtor will be left with this debt still having to be paid when the case is over.

This is a major trap for the unwary. It happens because in a Chapter 13 case, all claims must be filed by a “bar date” set at the start of the case. Late filed claims are not allowed, even if the creditor did not find out about the bankruptcy until after the deadline had passed. And if the creditor cannot file a claim to share in plan payment, then that creditor’s debt does not get discharged, unless the Chapter 13 case is converted to Chapter 7.

Note this could be the result of not listing the creditor, or not providing a proper address. As debtor’s counsel we urge all our clients to get us as accurate an address as possible so this does not happen.

On the other side of the coin, this rule can ensure some degree of fairness to the creditors who did not receive timely notice of the bankruptcy (either by official notice or from other sources of information). We always urge creditors to act right away and investigate as soon as they hear or learn about a bankruptcy filing by someone who owes them money. But if through no fault of their own, they did not learn about it in time to file a claim that will be allowed, there is some recourse.

Regulators report Homeowners Harmed by Loan Companies

Our experience with clients’ attempts to modify their mortgage loans has been disappointing. Neither we nor our colleagues have been able to make sense of the actions of mortgage servicers. Our experience has been confirmed by a recent spot check study of the Consumer Financial Protection Bureau, reported by Bloomberg on October 29, 2014. http://www.bloomberg.com/news/print/2014-10-29/consumer-bureau-finds-homeowners-harmed-by-loan-companies.html.

Back in January 2014, the CFPB implemented regulations covering how mortgage servicers handled these types of transactions. Recently it did a spot check of compliance. The findings?

1. Substantial delays in modifying loans resulting in negative consequences including higher mortgage payments and unjustified damage to borrower credit.

2. Failures to convert successful trial mortgage modifications into permanent ones. The delays meant unpaid interest charged at the old rate was added back into the loan raising the total loan cost.

3. One servicer reportedly sent permanent loan modification documents to borrowers, then after these were signed and returned, changed the terms in ways that were “materially different”

The CPFB and state regulators have already gone after and made settlements for substantial penalties against servicers including Flagstar Bank and Ocwen.  Others including Green Tree Servicing are under investigation.

The mortgage servicing industry handle over $9 trillion in mortgage payments. What the CFBP has found is no surprise to us.

For borrowers facing these types of difficulties, the results can be catastrophic. Aggressive regulation to ensure fairness is long overdue.

Anyone facing the possible loss of a home should seek qualified legal advice without delay, and recognize that loan modification is not always successful or even realistic.

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