Student Loans and Oklahoma Bankruptcy

Discharging Student Loans and Oklahoma Bankruptcy

South Tulsa Bankruptcy Lawyers

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

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

The statue does not define what an “undue hardship” consists of, and the Supreme Court has yet to issue a ruling in a bankruptcy case on the issue.  Thus, it is left up to the Federal Circuit courts to determine what standard should be used for determining undue hardship.  The most commonly used test comes from a New York case from 1987, Brunner v. New York State Higher Education Services Corp., (831 F.2d 395, 2d Cir. 1987).  In Brunner, the Second Circuit determined that an undue hardship consists of three factors:

1. Inability to maintain a minimal standard of living if forced to repay the loan.


2. Additional circumstances exist indicating that the state of affairs is likely to persist for a significant portion of the repayment period; and


3. Debtor has made good faith efforts to repay.

This test is, in and of itself, vague, particularly “additional circumstances” and “good faith efforts.”  Since the Brunner ruling in 1987, the courts have generally determined that “additional circumstances” is effectively equal to disability.  If a debtor is unable to work or earn a living due to illness or injury, and that condition is likely to be long term or permanent, then the “additional circumstances” test is met.  In such cases, “good faith efforts” have often been interpreted widely to mean any attempt to repay the loans, though the longer and more consistent loan repayment has been prior to bankruptcy, the better.  Some courts have suggested that other standards, such as a confluence of catastrophic events outside the debtor’s control (such as an unexpected divorce combined with illness of a child and loss of income) could constitute an “undue hardship”, particularly with past evidence of an intent to repay the loans, but until the Supreme Court rules on the issue, the Brunner test is still the most widely used.

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

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

Therefore, for a non-disabled debtor, student loans, whether federal or private, are effectively exempt from discharge.  Disabled debtors have more options.  The Department of Education, in accordance with the guidelines it released on July 7, are issuing forgiveness for federal student loans if they determine that an undue hardship exists.  This loan forgiveness is technically outside the bankruptcy, but is often requested in conjunction with a bankruptcy filing.  If the Department of Education determines that an undue hardship does not exist, a disabled debtor could still file an adversarial proceeding to attempt to discharge the debts through the court, though, as suggested above the Department of Education will still contest those proceedings if it deems it to be in the financial interest of the government.  Private loans, even for disabled debtors, are still likely to be challenged in all cases, and few, if any, private lenders have a procedure or policy in place to forgive the debt for disabled debtors.

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

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

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

The statue does not define what an “undue hardship” consists of, and the Supreme Court has yet to issue a ruling in a bankruptcy case on the issue.  Thus, it is left up to the Federal Circuit courts to determine what standard should be used for determining undue hardship.  The most commonly used test comes from a New York case from 1987, Brunner v. New York State Higher Education Services Corp., (831 F.2d 395, 2d Cir. 1987).  In Brunner, the Second Circuit determined that an undue hardship consists of three factors:

1. Inability to maintain a minimal standard of living if forced to repay the loan.


2. Additional circumstances exist indicating that the state of affairs is likely to persist for a significant portion of the repayment period; and


3. Debtor has made good faith efforts to repay.

This test is, in and of itself, vague, particularly “additional circumstances” and “good faith efforts.”  Since the Brunner ruling in 1987, the courts have generally determined that “additional circumstances” is effectively equal to disability.  If a debtor is unable to work or earn a living due to illness or injury, and that condition is likely to be long term or permanent, then the “additional circumstances” test is met.  In such cases, “good faith efforts” have often been interpreted widely to mean any attempt to repay the loans, though the longer and more consistent loan repayment has been prior to bankruptcy, the better.  Some courts have suggested that other standards, such as a confluence of catastrophic events outside the debtor’s control (such as an unexpected divorce combined with illness of a child and loss of income) could constitute an “undue hardship”, particularly with past evidence of an intent to repay the loans, but until the Supreme Court rules on the issue, the Brunner test is still the most widely used.

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

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

Therefore, for a non-disabled debtor, student loans, whether federal or private, are effectively exempt from discharge.  Disabled debtors have more options.  The Department of Education, in accordance with the guidelines it released on July 7, are issuing forgiveness for federal student loans if they determine that an undue hardship exists.  This loan forgiveness is technically outside the bankruptcy, but is often requested in conjunction with a bankruptcy filing.  If the Department of Education determines that an undue hardship does not exist, a disabled debtor could still file an adversarial proceeding to attempt to discharge the debts through the court, though, as suggested above the Department of Education will still contest those proceedings if it deems it to be in the financial interest of the government.  Private loans, even for disabled debtors, are still likely to be challenged in all cases, and few, if any, private lenders have a procedure or policy in place to forgive the debt for disabled debtors.

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

Free Consultation Oklahoma Bankruptcy and Student Loans

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

Student Loans and Oklahoma Bankruptcy

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Oklahoma Bankruptcy Options and Your Assets

Protecting Your Assets in an Oklahoma Bankruptcy

When you file for bankruptcy, the court and the creditors will heavily scrutinize your assets. In exchange for assistance with your debts, either through discharge or reorganization, you must be willing to negotiate with creditors. If you have valuable assets, the bankruptcy system does allow you various means of legally protecting them.

First things first: do not commit bankruptcy fraud. If you make big purchases on credit cards, accumulate cash advances or request large personal loans right before filing for bankruptcy, the court will be suspicious of your spending activity. In addition, if you try to protect your assets by transferring all of them to friends or family members on the eve of your Oklahoma chapter 7 bankruptcy, creditors may attempt to seize these assets.

When you file for bankruptcy, all of your assets and debts become your bankruptcy estate. The value of your bankruptcy estate must be distributed by the trustee to your creditors. However, bankruptcy does allow exemptions. Depending on the value of your estate, you may be able to avoid relinquishing any property to creditors.

Bankruptcies are governed by both state and federal law. The Bankruptcy Code is a federal law, and federal bankruptcy judges oversee the process. However, Oklahoma is permitted to pass its own bankruptcy regulations. In Oklahoma, you are required to use Oklahoma bankruptcy exemptions and federal non-bankruptcy exemptions when valuing your bankruptcy estate. Oklahoma and federal bankruptcy exemptions include:

• The full value of your primary residence unless you also use your primary residence for your business, which would then reduce the exemption to $5,000


• Up to 1 acre of land if you live in a town but up to 160 acres if you live on a farm or ranch


• Cemetery plots


• Engagement rings


• Books and photos


• Clothing


• Home defense guns


• Livestock for family, not business, use


• Medical equipment


• College savings plans


• Furniture, decorations, computers, and other personal property


• Personal injury awards amounting up to $50,000


• Individual Development Accounts


• Food


• Funeral benefits


• War bond payroll savings


• Up to $7,500 in equity in a vehicle


• Various retirement accounts such as 401(k)s and IRAs worth up to $1,245,745


• Crime compensation


• Social Security and other disability payments


• Unemployment pay


• Worker’s compensation


• Earned income tax credit


• Farming tools


• Enough seeds to last one harvest


• Business equipment like computers, fax machines, filing cabinets, and more


• 75% of your income earned in the 3 months preceding filing


• Spousal and child support


• Annuities


• Group life insurance proceeds


• Property owned by your LLP or GP business


• And more

This is only a partial list. As you can see, there is an astonishing number of bankruptcy exemptions that may apply to your estate. While your bankruptcy estate may seem fairly valuable after you compare your income with your liabilities, the exemptions can greatly reduce your income. In addition, these exempted properties cannot be seized in a Chapter 7 bankruptcy. Thus if you are seeking a total discharge of unsecured debts, you will be able to protect your home from seizure. You may also be able to protect your car depending on its worth and the overall value of your estate.

The best way to prepare for bankruptcy is to plan ahead. By securing your assets before the threat of bankruptcy enters your mind, you can protect them down the road. Placing some of your valuable assets like inheritances into a trust fund will transfer ownership out of your hands. Money in a trust fund will not be calculated as part of your estate. In addition, placing money in a trust fund will preserve your funds for the probate process as well.

Free Consultation And Your Assets in Oklahoma Bankruptcy;

If you are considering an Oklahoma bankruptcy keeping your assets is very important. Out attorneys will go through your assets and debts and apply the bankruptcy exemptions so that you don’t lose your home, car, retirement and most other personal property in bankruptcy. Call today for a free consultation.

Oklahoma Bankruptcy Options and Your Assets

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Tulsa Lawyer discusses Debt Solutions

Evaluating Your Debt Solutions Short of an Oklahoma Bankruptcy

If you are struggling to pay your bills, you have likely grown accustomed to constant harassing calls from creditors. You want to pay them off and stop the endless ringing of your phone, but you simply don’t have the money. Your credit score slips lower and lower as the delinquencies pile up. Every month, you find yourself making financial sacrifices or juggling between whether to pay one bill or another. If you have grown tired of fighting your debt, you don’t need to resign yourself to another day of avoiding the phone and mailbox. By choosing the right debt solutions, or bankruptcy you can legally and responsibly address your debt concerns and work toward a brighter future.

First, there’s always the option of paying the past due balances on your bills to become current again, then making timely monthly payments thereafter. However, if you were able to remain current on all of your bills, you wouldn’t have fallen behind in the first place. Thus, you will need to find a debt solution that is more aligned with your budget and goals.

A debt settlement plan is part of a group of debt solutions that allows you to offer a lump sum payment to the creditor in exchange for a cancellation of the debt. You can often negotiate a payment that is 30-40% of the total amount you owe. If you are several months behind and believe that the creditor is likely to sell your debt soon, you may be able to settle for a very low amount. Creditors sell debt for pennies on the dollar, then write off the debt. The creditor may be incentivized to take your low offer if it is higher than what they would get if they sold your debt to a new creditor. The debt will show as settled on your credit report, and the account will be closed. This method requires you to have cash up-front, which many individuals do not have.

A debt-snowball plan allows you to slowly but surely pay off debt over time. You begin by making only the minimum payment on each debt. Any leftover money you have each month is applied to the lowest balance. Once that balance is paid off in full, you roll the leftover money over to the next lowest balance. You continue this until your highest balance is paid. Your leftover money will increase as more debts are paid off, allowing you to allocate more money to paying off the balances each month. Again, this method requires you to have available money on hand. If you cannot pay your minimum payments now, the debt-snowball plan will not be feasible.

A debt management and debt solutions plan is an option for individuals who cannot make their minimum payments. A debt solutions or debt management plan is usually arranged by a credit counselor for a fee. First, the creditor interviews you, obtains information on your income and expenses, and computes the maximum amount you can spend monthly on your debt. On your behalf, the credit counselor then negotiates with the creditors to reduce both your interest rates and monthly payments. You will pay a lump sum to the credit counselor each month, who will then distribute individual payments to the creditors in amounts agreed upon with the creditors and according to a schedule. All accounts included in the plan will be closed. In addition, many creditors have stringent requirements for participating in a plan. For instance, some may not allow you to have any open lines of credit while others will require you to drastically cut down on living expenses to prove you are making progress toward being financially stable and savvy. The debt management plan will likely pay off all of your debts in 3 to 4 years, though you can stretch it out for longer to reduce the monthly payments. The debt solutions or debt management plan will not improve your credit score. In fact, the creditors might not even update your credit report to reflect that you are making monthly payments through the plan.

Free Consultation About Debt Solutions in Oklahoma

All of these options come with their own setbacks. The most significant con is the requirement that you have available funds to pay the bills in some form. If paying even a small amount is an extreme hardship for you, bankruptcy in Oklahoma will likely be your best option. Bankruptcy can assist you with either discharging your debt through a chapter seven or restructuring them into manageable payments in order to wipe your slate clean. An experienced bankruptcy attorney can counsel you on which debt solution works best for you and how to file for bankruptcy. Call us today for a free Oklahoma bankruptcy consultation.

Tulsa Lawyer discusses Debt Solutions

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