Questions for our American friends

[DTravel]

Originally Posted by winebeavis

Then there are secured debts. These have collateral and the lien has been perfected in one of the permissible ways under the local version of U.C.C. 9. when filing the bankruptcy, one must declare what they intend to do with the secured property (in ch. 7 you file a "Statement of Intention"). A debtor usually has two choices A) reaffirm the debt and keep paying for the collateral; or B) surrender it. There is no penalty for surrendering it. In Chapter 13, you must pay any arrears through the plan and frequently it makes sense to place the value (if subject to the cramdown) into the plan. However, sometimes something happens where the collateral vanishes. Say an air conditioning unit gets stolen or a car is smashed. When the collateral is gone, that debt becomes unsecured, whether the creditor likes it or not.

Another way a Lien can be stripped is if the value of the collateral has dropped below the amount of the Note. You'll see that a lot recently with property secured second loans (Mortgages). With many homes precipitously dropping in assessed value they are worth less than the current principal of the first mortgage, leaving no equity to cover an existing second mortgage.

[winebeavis]

Originally Posted by 9876543210

winebeavis,



Well thats interesting. My gf just went through Chapter 13 and was told she couldn't get rid of her student loans (by her attorney). So any links you could provide showing how this could be done would be greatly appreciated. She's already had her meeting with her creditors (nobody, and I mean nobody, showed up to protect any of their claims). So all were discharged. All she has remaining are a small car payment, her attorney fees and the mortgage (and what a mess that is).

Link to the first case that came up in the Northern District of Texas where at least a partial discharge was granted: http://www.txnb.uscourts.gov/opinion...Adv01-2017.pdf
for comparison here's a case that goes the opposite direction from the same court: http://www.txnb.uscourts.gov/opinion...Guaranteed.pdf

Educational loans typically are not dischargeable. However, there is the built in exception to the exception under section 523(a)(8) of the code for an "undue hardship." Well that brings us to what's an "undue hardship?" It's a very, very difficult hurdle to overcome. I've got the job done once in the last 7 years. It's probably impossible by definition in a chapter 13. The 5th Circuit, where I work, essentially uses what we call the "Brunner test" for determination. See: Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 [2d Cir. 1987]. Here's a link to Brunner (haven't cross checked it): http://www.moranlaw.net/student_loan_brunner.htm

The undue hardship test in Brunner has these three parts:
(1) that the debtor cannot maintain, based on current income and expenses, a "minimal" standard of living for herself and her dependents if forced to repay the loans;
(2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
(3) that the debtor has made good faith efforts to repay the loans.

It doesn't sound that onerous, but it's not common for all three elements to be met. Especially the way my circuit has interpreted it, and worse, the way my 7 local BK judges interpret that. It became kind of circular in that elements 1 and 3 are usually contradiction in practice. And the whole process is determined through an adversary proceeding (think of an AP as a trial within the bankruptcy). That also makes it unusually costly for somebody who can't afford it. Like the above linked Merillat case makes mention, ICR and now IBR repayment plans exist. IBR's have compounded the situation and should be another topic for another day. But those programs lower the repayment amounts, sometimes to $0, that make it harder to get past the first part of Brunner. So, yeah it is possible to get a discharge of an educational loan. But these are pretty rare. Mine involved a person who later became mentally injured to the point she required around the clock care and didn't have the capacity to complete an IBR. If creditors weren't trying to attach her LTD benefits, I wouldn't have gone this path and I ate the costs of doing it.

It's usual for creditors to show up at a 341 meeting. That shouldn't be a surprise. However, the deadline to file the proof of claim occurs much, much later than the meeting of creditors. Typically, the unsecureds file these closer to the deadline. The there will be a trustees recommendation concerning claims that also comes much later. Almost a year later around here depending on the Ch 13 trustee.

There's other ways than what I've mentioned. Dtravel touches on stripoffs of sub-liens along with other ways to avoid liens. It used to make a difference if the loan was private or government, etc. If your gf's attorney told her the student loans aren't dischargeable, they're not in her case. It's the rare case where they are.

[deepsepia]

@winebeavis -- thumbs up for a remarkably erudite precis.

It remains one of the surprises of the Internet age that places like this, devoted to the worship of the boobies of yesteryear, also offer learned opinions on things besides mammaries.

For our foreign friends who might not be interested in the specifics, one interesting general point that can be seen in winebeavis' note is the way in which not just law, but caselaw can vary in the US from jurisdiction to jurisdiction. So far as I know, that doesn't happen in other places.

[scoundrel]

Originally Posted by deepsepia

For our foreign friends who might not be interested in the specifics, one interesting general point that can be seen in winebeavis' note is the way in which not just law, but caselaw can vary in the US from jurisdiction to jurisdiction. So far as I know, that doesn't happen in other places.

There are seperate legal systems for England and Wales and for Scotland. For example, until recently, unlicensed wheel clampers had legal freedom to clamp vehicles on private land in the UK. The regular abuse of this freedom over several decades eventually forced the Westminster parliament to prohibit the practise by statute. In Scotland, that wasn't necessary. An enterprising chap who set up a company in the early 1990s and started clamping vehicles on private land and demanding a release fee, which was a recognised business model in England and Wales until 2011, was convicted in a Scottish court for the crime of extortion and sent to prison.

[deepsepia]

Originally Posted by scoundrel

There are seperate legal systems for England and Wales and for Scotland. For example, until recently, unlicensed wheel clampers had legal freedom to clamp vehicles on private land in the UK. The regular abuse of this freedom over several decades eventually forced the Westminster parliament to prohibit the practise by statute. In Scotland, that wasn't necessary. An enterprising chap who set up a company in the early 1990s and started clamping vehicles on private land and demanding a release fee, which was a recognised business model in England and Wales until 2011, was convicted in a Scottish court for the crime of extortion and sent to prison.

This is a little different. The US system is one legal system -- at the Federal level-- yet there can be a distinction in caselaw, meaning court decisions. That is, the Fifth circuit might find that you have a certain right, while the Second Circuit judges disagree. In the case of England and Scotland, they actually have different laws.

In the US, you can have different understandings of the meaning of the same laws, and of the constitution, in different places. The Supreme Court usually acts to harmonize disagreements between Circuits, but they don't have to.

It's quite odd. . .

There's a very good BBC podcast called "Law In Action" (I think) -- a while back they interviewed a French woman lawyer in Cardiff who has the fascinating task of assembling a concordance of Westminster and Welsh law.

[scoundrel]

Originally Posted by deepsepia

This is a little different. The US system is one legal system -- at the Federal level-- yet there can be a distinction in caselaw, meaning court decisions. That is, the Fifth circuit might find that you have a certain right, while the Second Circuit judges disagree. In the case of England and Scotland, they actually have different laws.

These would be Federal statutes? The circuit judges can dream up opposed interpretations of the same Federal statute and both opposed precedent are simultaneously valid, but only in different circuits? This sounds like a bad thing to me; people and businesses need to have stable and consistent laws.

[Nobody1]

Originally Posted by deepsepia

It's quite odd. . .

I am not a legal expert deepsepia, but I know this principle as 'administrative discretion'.

Legal dictionary :

The exercise of professional expertise and judgment, as opposed to strict adherence to regulations or statutes, in making a decision or performing official acts or duties.

A discretionary action is informal and, therefore, unprotected by the safeguards inherent in formal procedure. A public official, for example, has administrative discretion when he or she has the freedom to make a choice among potential courses of action. Abuse of Discretion is the failure to exercise reasonable judgment or discretion. It might provide a Cause of Action for an unconstitutional invasion of rights protected by the due process clause of the Constitution.

http://legal-dictionary.thefreedicti...ive+Discretion

Something like that exists in most jurisdictions across the world. Even in the Islamic Sharia.

Edit : http://en.wikipedia.org/wiki/Discretion

[deepsepia]

Originally Posted by Nobody1

I am not a legal expert deepsepia, but I know this principle as 'administrative discretion'.

That's an interesting issue, but not the same thing. This is actually jurisprudence, judicial decisions, which is different.

So the effect of it is, if you were to ask a lawyer about, say, a complex transaction that takes place in the Fifth Circuit -- a bankruptcy, for example-- you might find that the actual understanding of the law, as interpreted by the Courts, would be different than it would be in the Second Circuit.

This is not an "administrative" issue -- its a peculiarity of the American system that you could actually get a different answer to a Federal law question, depending on where in the United States you ask it. (State laws are themselves intrinsically different from state to state -- but everyone is looking at the same Federal Bankruptcy Code, for example).

Its really a very obscure issue, but it does illustrate a peculiarity of the American system.

I was looking for an illustrative case, and I find there's an entire blog devoted to "split circuits" called, with very little imagination "split circuits" -- can't link to it here, but anyway, its a busy topic.

A circuit split is more than "a different decision" -- there are lots of those. Within a Circuit, lower courts are obliged to follow the decisions of the Appeals courts for their circuit. So essentially, you can have competing understandings of the law . . .

[winebeavis]

I certainly know nothing about british rules and laws. But it is not uncommon to have to different courts apply different rulings. In deepsepia's example: section 523(a) says student loans are exemption from discharge unless there's an undue hardship. well, what's an undue hardship and how do you determine it? In the beginning, most district courts are left to figuring that out for themselves. Until the court of appeal (circuit) make a decision. That appeals decision becomes binding on all courts in that circuit. In the example of how to define "undue hardship," most circuits have adopted the 2nd circuit's test in the Brunner case. So in the 5th Circuit, I have to overcome those three hurdles. But the 9th circuit, hypothetically, might have a completely different test, or no test all. So, if I were to argue against a discharge in this hypothetical in the 9th circuit, talking about Brunner would be silly --other than to urge that circuit to adopt that law. Likewise, if somebody came into the 5th circuit talking some other test, they would be shut down pretty fast. So it is the same law, applied differently. Circuits have known to disagree all of the time. Still different judges in the same court can apply the same brunner test and reach different conclusions. Federal District Courts are one court with many divisions and multiple judges.

The supreme court --at their leisure--can decide and what they say then goes for all. So the pecking order goes district court--appeals court--supreme court at the federal level. Districts serve geographical districts, i.e. U.S. District Court for the Northern District of Texas. It's court of appeals is the Court of Appeals for the 5th Circuit covering another geographic area (Texas, Louisiana, Mississippi). Supreme Court is over all. Bankruptcy Courts are not Article III courts. Meaning their judges are not appointed for life and good behavior. The operate similar to magistrates judges. What can and can't be done in Bankruptcy Court is completely up in the air. The Supreme Court released a completely incomprehensible decision in Stern v. Marshall about what is and isn't a core proceeding and when does the bankruptcy court have the ability to decide non-bankruptcy issues (lots and lots of overlap). We have no idea what it means yet. Depends on which judge you ask. But Stern v. Marshall is nice in that it brings us back to VEF. It's about Anna Nicole Smith's estate. So thank you Guess jeans girl and bunny ANS.

[deepsepia]

Originally Posted by winebeavis

I certainly know nothing about british rules and laws. But it is not uncommon to have to different courts apply different rulings. In deepsepia's example: section 523(a) says student loans are exemption from discharge unless there's an undue hardship. well, what's an undue hardship and how do you determine it? In the beginning, most district courts are left to figuring that out for themselves. Until the court of appeal (circuit) make a decision.

. . . and thus ends another episode of "Winebeavis & Blackstone" -- everyone's favorite profane jurists . . .

Seriously, a tip of the hat to you, Wb, for deep erudition.